If you have recently or are currently going through a divorce, life insurance is probably not in the forefront of your concerns at the moment. However, it is one of the many items you will have to confront during this not-so-happy time. As nearly 50% of all U.S. marriages end in divorce, it is a problem several of our clients have had to deal with.
One of the questions that will naturally come up is “what to do with the spouse who is a beneficiary on your life insurance policy?” Unfortunately, there is no single right answer to this question. You might not have any choice in the matter, as the divorce settlement might dictate how the policy should be handled, moving forward. For example, if the divorce settlement prevents a change in the ownership and beneficiary of the policy, any subsequent change will be held to be invalid.
The court might rule that the policy be maintained for a specified period of time, to either insure alimony or child support, or both. The court can also decide on which party is to maintain ownership of the policy. As the owner decides on the beneficiaries of the policy, ownership is an extremely important decision.
The court could also establish a lapse provision. This ruling might include language that would entitle the divorced spouse and children to a percentage of the policyholder’s estate (equal to the death benefit of the lapsed policy), should the policy lapse.
While you probably have many pressing concerns while in the midst of a divorce, the maintaining (or cancellation) of a life insurance policy shouldn’t be overlooked.
The above is the opinion of the author and in no way should it be construed as legal advice. You should consult with your attorney before making any changes to your current life insurance policy.