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How Does Divorce Impact Your Life Insurance Policy?

The emotional toll of separation and divorce is well known. Getting divorced can be a financially wrenching experience as well. The distribution of assets and negotiating child support may be complicated and contentious. Life insurance policies may also play a role in the division of assets and ensuring the continuation of child support payments.

In fact, New Jersey requires an Affidavit of Insurance Coverage in contested divorce cases. The affidavit includes a list of life insurance policies in place at the time of the divorce filing.

Life Insurance Basics

The main purpose of life insurance is to provide a death benefit to the beneficiary when the insured person dies. However, it is important to keep in mind that:

  • The insured is the person who is covered by the policy. When they die, the beneficiary gets the death benefit.
  • The policyholder is the person who pays the premiums and controls the policy and has the authority to change it.
  • The policyholder and the insured are not necessarily the same person. This becomes important for life insurance policies that are set up after divorce to protect the financial interests of any children involved.

Life insurance may play a role in the division of assets during a divorce proceeding, depending upon the type of policy, which include:

  • Permanent life, whole life, and universal life insurance policies have a cash value, and should be considered in the division of assets.
  • Term life insurance has no cash value. Therefore, it plays no role in the division of assets.

The simplest scenario is when a couple has term life insurance and no children. If each spouse has named the other as the primary beneficiary, they may simply agree to name another beneficiary. Keep in mind that the policy will not change unless the policyholder contacts the insurance company to request a change.

Child Support and Life Insurance

Courts will generally require the spouse who is paying child support to have life insurance. This is to protect the child’s financial future in the event the supporting spouse passes away. However, if the supporting spouse is untrustworthy, he or she may later change the policy without telling the receiving spouse, or simply stop paying the premiums altogether and let the policy lapse.

Under these circumstances, the receiving spouse may want to consider being the policyholder. He or she will then have the power to control the terms of the policy but also be obligated to pay the premiums. However, in a divorce, finances are usually tight, and this may be difficult to do. It is best to seek the guidance of an experienced divorce lawyer and financial advisor when considering how to structure a post-divorce life insurance policy.

Another aspect to consider is whether to name children as beneficiaries. The main problem with this is that most insurance companies will not pay death benefits to children until they are 18 or 19 years old. One option is to arrange for a custodian to control the death benefit funds or set up a trust. If you are sharing custody with your ex-spouse, you could name them as the beneficiary.

Life insurance may be overlooked in the turmoil of divorce, but it is a really important tool for protecting the financial interests of the divorcing couple and any children. Applying for life insurance typically takes several weeks or more. The sooner you plan, the more beneficial. A knowledgeable attorney can help you with this process.

Marlton Divorce Lawyers at Burnham Douglass Help Divorcing Couples Protect the Financial Interests of their Families

If you are contemplating a divorce, you may feel overwhelmed by the financial implications. Our Marlton divorce lawyers at Burnham Douglass will provide guidance during this difficult time. Call us at 856-751-5505 or contact us online for a free consultation. Located in Marlton and Northfield, New Jersey, we represent clients throughout South Jersey, including Camden County, Burlington County, Atlantic County, Gloucester County, and Mercer County.

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