Life Insurance Considerations and Divorce

Among the various assets that must be dealt with in a divorce, sorting out life insurance is one that is often neglected or overlooked. As you deal with major issues such as custody battles, support, and selling a home, it’s not surprising that you might set aside other tasks such as reviewing your life insurance policy. For a variety of reasons, this could be a very costly mistake. In some divorce cases, a new life insurance policy may be necessary to comply with the terms of the divorce.

How Divorce Might Affect Your Existing Life Insurance Policy

We keep life insurance in place to protect the financial interests of our spouse and dependent children. Estate planning may not be at the top of your list when you’re going through a divorce, but your life is changing dramatically, and this is probably one of the best times to make these changes. Most couples list the other spouse as their primary beneficiary on their life insurance policy. When you divorce, your wishes on that front will probably change.

In some states, it’s entirely up to you to remove your ex-spouse as a beneficiary on your life insurance policy. South Carolina Code § 62-2-507 makes this automatic. This is a part of the state’s probate code that immediately revokes a life insurance beneficiary designation upon divorce or annulment. As soon as your divorce decree is signed, your spouse is no longer entitled to collect on your life insurance policy. This still leaves you with a pressing issue. If you didn’t designate secondary beneficiaries on your life insurance policy, then your estate will enter probate when you die.

The best solution is to update your life insurance policy beneficiary forms when you get a divorce. You can remove your ex-spouse from the form yourself and then add your new beneficiaries to the form. This eliminates any ambiguity and ensures that your life insurance policy is completely updated and in line with your current wishes.

Handling a Life Insurance Value as an Asset

Some whole and universal life insurance policies have accumulated cash value and should be treated as assets during a divorce settlement. These types of life insurance policies have an investment component that grows over time. At any given time, that life insurance policy can be “cashed out” for its cash value.

When you get divorced, this type of life insurance policy is an asset like any other that adds to a person’s net worth. Some divorce settlements will split the cash value of a whole life insurance policy.

A Life Insurance Policy as Part of a Divorce Settlement

Whether you have life insurance coverage at the time of your divorce or not, life insurance policies are now a standard part of divorce settlement agreements. When one spouse has an order in place to pay child support or alimony, they are also usually expected to maintain a life insurance policy that will cover those same monies owed should they prematurely pass away.

As the spouse who has custody of the children or who is receiving alimony payments, it’s important that you have assurances that the life insurance policy is sufficient to cover future expenses. You may also want to ask for a provision in the settlement that prohibits a policy cancellation, lapse, or change of beneficiary.

While some divorce agreements require that a spouse purchase a life insurance policy, they aren’t specific enough to protect the rights of children and other beneficiaries. There should be specific language requiring that a life insurance policy always be maintained. Some experts recommend requesting that the beneficiary spouse be added as a contact on the life insurance policy so that insurers can let them know if premiums aren’t paid, or other changes are made to policy limits and provisions.

Protecting your assets and rights during a divorce can be a challenge. While many people don’t think about life insurance when facing child custody and divorce issues, this important coverage can help safeguard your future. Contact the experienced South Carolina family law attorneys at Cate & Brough Law Firm. We can be reached at (864) 585-4226 or online to learn how we can help guide you through this difficult process.

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Cate & Brough, P.A.

At Cate & Brough, we all have personal experience with family law and family court. We know more than just what the law says about your issue – we know what you are going through.

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