Divorce and Life Insurance Policies

Divorce and Life Insurance Policies

Life Insurance Policies are assets and must be listed and addressed in your Divorce Decree and Financial Affidavit.

In a Connecticut Divorce, life insurance policies are listed on the Financial Affidavits. Like everything in life, the details matter. Life insurance policies can be employer-provided and based on when and for how long a spouse remains employed.

If no longer employed and laid off, fired, left employment because a spouse is or becomes sick or disabled, most often than not, employer-provided life insurance policies are not portable and hence become “extinct.”  If a spouse becomes ill or disabled, often they become uninsurable. Or better said, the cost to insure someone with a medical condition is prohibitive for most of us.

A term life insurance policy is a better bet

A term life insurance policy is not tied to one’s employer. Some spouses plan even better and purchase whole life or universal life insurance. There are various types of life insurance policies, and a good financial planner can discuss and help spouses to buy the right life insurance for each individual and family.

  • Account numbers
  • Face Amount
  • Duration of the Term of Life Insurance
  • Beneficiary Designation

All of the little details matter when inventorying the marital assets and consequently deciding the allocation of the assets.

When moving beyond identifying the type of life insurance, it is essential to understand that in a Connecticut divorce. Simultaneously, your former spouse’s rights to your estate terminate upon the divorce, and life insurance policies do not work the same way. Divorce does not automatically revoke listed beneficiaries from receiving life insurance benefits upon your death.

When taking out a life insurance policy, it is common to name your spouse as the beneficiary, and if you have children, your children in the event your spouse is also not alive. Once the divorce decree is finalized, you must notify your insurance company so that they can revoke your former spouse from receiving life insurance benefits. Failing to do so can result in the insurance company releasing the funds to the listed beneficiary, your former spouse, without liability. Many factors must be accounted for when the decision is made to dissolve the marriage.

You and your spouse will have to determine the rights:

  • To assets owned before marriage
  • Assets bought together during the marriage
  • Support rights (child support and spousal support or alimony)
  • Child custody if children are under 18 years old,
  • As well as different policies and accounts you planned for together.

Additional Steps

There can also be issues if you and your spouse named one another in life insurance policies or for retirement savings accounts for the other’s benefit. There are additional steps you will need to take after the divorce decree was entered to have that policy apply to others, such as your children or even your ex-spouse.

Once the divorce decree is entered in court, each spouse legally now has separate assets and rights that the other spouse no longer has any vested interest. Absent some (mutual) mistake or fraud, the division of assets is permanent. However, certain assets must be changed by the spouses after the divorce that does not automatically terminate upon the dissolution of the marriage, such as life insurance policies and retirement accounts beneficiaries.

Some families who have minor children together will leave the former spouse as the beneficiary if the relationship is amicable. However, if it is not, you do not want the former spouse receiving proceeds after your death. Most life insurance policies are revocable, meaning you can change them during your lifetime and change who will receive the policy in the event of your death.

Second Marriage

Changing your policy is also an essential consideration if you are entering into a second marriage. Amending the policy to name your new spouse is important because while a court will recognize your most recent marriage, they will not amend your life insurance policy designation if you failed to.

“The devil is in the detail” is an idiom that refers to an element hidden in the details and meaning that something might seem simple at first look. But it will take more time and effort to do it correctly and accurately. I like the idiom “God is in the detail” better. My opinion only here. One should do things thoroughly, as details are essential to ward off the “evil” created by NOT paying attention to the little or hidden details. Bottom line, plan not to fail when addressing life insurance in a divorce, especially if you have young children.

If you have more questions about divorce and life insurance policies, please feel free to contact us.

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