Divorce and Life Insurance: What You Need to Know

Whole life insurance pen and dollar banknotes. Concept for Divorce and Life Insurance: What You Need to Know

Divorce changes a lot of things—some obvious, and some less so. One of those less-obvious things is what happens to your life insurance. Some people don’t even think about life insurance after divorce until a tragedy happens, making the issue suddenly relevant. Others wonder, “What happens to life insurance in divorce?” It’s a good question, and an important one. Read on to learn how divorce affects life insurance, whether you are the policy holder or a beneficiary of someone else’s policy.

Can I Change My Life Insurance Beneficiary During a Divorce?

Absent a court order to the contrary, you should be able to change the beneficiary on your life insurance policy during a divorce. There have been instances when one spouse died while a divorce was pending, and the other spouse was the named beneficiary on their life insurance policy. The surviving spouse was not only entitled to the life insurance benefits, but as a legal spouse, to inherit from the deceased spouse under Utah law if there was no estate plan dictating otherwise.

A word of caution: if you are considering naming your children as your primary beneficiaries, talk to your estate planning attorney. If you were to pass away while at least one of your children is still a minor, someone would need to be appointed by the probate court to serve as conservator of the child’s assets. Your child would become entitled to the entire life insurance benefit upon turning 18, which could be a bad idea for a number of reasons! Also, the conservator, the person who is controlling those assets in the meantime, could end up being your ex-spouse.

Does a Divorce Automatically Remove an Ex-Spouse as Beneficiary of a Life Insurance Policy?

Probably…but that may not be a chance you are willing to take. About half the states have statutes that automatically and explicitly remove a spouse as beneficiary of a life insurance policy upon divorce. A 2017 Utah Supreme Court case, Hertzke v. Snyder, ruled that the divorce of one of the parties to that case did revoke her designation as beneficiary of the policy at issue. However, that ruling depended in part on the specific facts of the case.

In short, there is no guarantee that your divorce will automatically revoke your designation of your spouse as beneficiary of your life insurance policy (and vice versa). To be on the safe side, and save potential litigation for your loved ones after your death, change your beneficiary yourself. It is relatively easy to do and costs you nothing.

Is a Life Insurance Policy a Marital Asset to Be Divided in a Divorce?

It depends on the type of life insurance policy. If you have a term life insurance policy, it has no cash value, and is not considered an asset subject to division in a divorce. However, if it is a “whole-life” or “universal” policy, it may have a cash value and may be considered a marital asset. If you are not sure what type of policy you have, call your insurance agent or give your policy documents to your divorce attorney to review.

Can the Court Order Me to Have Life Insurance That Names My Ex-Spouse as Beneficiary?

Yes, under certain circumstances. For instance, if you have a child support obligation to your ex-spouse, the court may order you to maintain life insurance in an amount sufficient to secure your future child support and protect your children’s financial security in the event of your death. The court could also require you to provide your ex-spouse with proof that you are paying the necessary premiums to maintain the insurance.

Technically, the life insurance in this situation is intended to benefit your children, not your ex-spouse. But, like any child support payment you would make, the funds would be in your ex-spouse’s hands to be used for the children’s benefit as your ex sees fit.

My Spouse Has Agreed to Pay Me Alimony in Our Divorce. Should I Take Out a Life Insurance Policy on Them?

If alimony is part of your divorce settlement agreement, you can ask them to maintain life insurance to secure that obligation and include that in your settlement. It is important that this requirement be a part of the court order that grants your divorce. If it is not, your spouse could agree to get the insurance and then fail to do so or fail to maintain it. If your spouse is unwilling to have life insurance to secure their alimony obligation, you can ask the court to require them to do so. The court order should specify who is responsible for paying the life insurance premium; if it is your spouse, you may want to ask the court to order them to provide you with proof premiums have been paid (and specify what happens if they are not).

It is possible that you could take out a life insurance policy on your ex-spouse if you can prove you depend on them for support—what life insurance companies refer to as having an “insurable interest.” However, in that case, you would be responsible for paying the premiums on the policy.

Should I Buy Life Insurance After Divorce?

Even if you didn’t have life insurance during your marriage, if you have children, you should think about getting it after divorce. Life insurance will provide a measure of security for your children should anything happen to you, and give you peace of mind.

To learn more about life insurance and divorce, contact BartonWood to schedule a consultation.