During the stressful time of divorce, it is likely the last thing you want to think about is more paperwork and decisions. However, there are several key factors relating to your insurance that you should consider carefully once you decide to sign those divorce papers. Planning for the changes divorce will bring should begin long before the divorce is final in order to protect yourself as much as possible.
Most likely, the selection of life and health insurance beneficiaries will have to be revised. Furthermore, it is common for one spouse to carry the family on an employer-based health insurance plan which would terminate for the other spouse in the event of divorce. In addition to health and life insurance, divorcing couples should also consider the ramifications of divorce on property insurance and disability insurance.
It is important to note that the spouse given custody of the children should make sure that the noncustodial parent is insured. This is critically important, because, if you depend on alimony or child support payments form your ex-spouse, you do not want to be left financially vulnerable and distraught in the event that something happens to your ex-spouse. Life insurance can protect you and your children in the case of death. Keep in mind that some policies require the noncustodial parent to name the custodial parent as the beneficiary in this case. Once you agree on a policy and its terms, it should also state that you periodically receive proof that the policy is still in force.
If you cannot get new insurance on your spouse and you are the custodial parent receiving child support, you should have his or her existing policies transferred to you as the new policy owner or beneficiary. This can and should be planned as part of the divorce agreement; make sure you are designated as the outright policy holder or as the irrevocable beneficiary.
If you are the custodial parent, and are having trouble paying the policy premiums, you can petition the court to raise your child support or alimony payments. The court could even require your spouse to pay the premiums. If that is the case, you should be diligent about monitoring your policy periodically to make sure the payments are being made.
Life insurance considerations are also important for the noncustodial parent; if your spouse were to die, you would likely gain custody of the children, which would increase your finances dramatically. And either way, you will want to make sure that your children are protected financially. Since you will most likely have certain responsibilities toward your ex-spouse and children, you should insure your obligations by paying for a new policy on your life for the custodial parent. That way, you can keep any existing policies, and protect your children at the same time. This policy can be given to your former spouse free from gift tax if given before or as part of the divorce settlement. And, if the policy is only in your former spouse’s name, any premiums you pay will likely be considered will likely be considered alimony for income tax purposes and would thus be tax deductible.