All divorces involve a division of assets. And many times, the division of assets includes difficult settlement negotiations. If either party in the divorce proceedings holds a life insurance policy, they must make some determinations as to how the policy is handled, particularly when the other party is named as the beneficiary.
The first order of business is to inform the insurance company of the pending divorce. The company will give the policy holder instructions on how to change the beneficiary. If this change is not made, the policy holder will risk their ex-spouse receiving the money from the policy when the holder dies.
In some cases, the policy holder can transfer the ownership rights to their policy in order to ensure child support or alimony payments. Regardless of the type of life insurance, it is imperative that both parties agree as to who will own, and subsequently control, the policy. One option to consider is naming the custodial parent of all minor children involved in the divorce as the policy owner; this will help guarantee the insurance policy is maintained as per the divorce decree.
The current insurance policy holder can even request a stipulation be included in the divorce judgment that further protects the policy. This stipulation will state the ex-spouse allows the policy to lapse or changes the beneficiary, the current holder, or the current holder’s children, will receive a portion of the ex-spouses’ estate; this amount will be equaled to the life insurance policy’s death benefit.
In a divorce, an insurance policy can be a helpful financial tool. The policy can be used to compensate children from a prior marriage in the event the ex-spouse is awarded alimony and the involved children are awarded child support. Sometimes, adult children from a previous marriage can sue the policy holder’s estate if the splitting of assets is not deemed fair. Permanent life insurance is an excellent solution to this potential issue.
By naming the adult children from the prior marriage as beneficiaries on a permanent life insurance policy, those children will receive the monetary benefits in the event of the policy holder’s death. If the policy holder ever remarries, his current spouse, and their children, will be awarded the policy holder’s assets and accumulated property. Doing this ensures the policy holder provides for all families. With careful planning, it is possible to not only protect the policy but also use the policy to one’s benefit.