Life Insurance Policies as Marital Assets
First, so that we were all on the same page, Mr. Boonswang told us a bit about the types of life insurance are available. In general, there are two types of insurance - term life and whole life. Term Life policies have no cash value and pay out upon the death of the insured. Whole Life policies do have present cash value.
Ms. Wagner pointed out that that’s why whole life policies are considered marital assets. Those policies must be divided as part of the divorce proceedings. It is common for a divorcing couple to just cash out their whole life policies and then divide the proceeds as is appropriate considering their other joint assets. That will be memorialized in the divorce decree as part of the property settlement order or agreement.
Life Insurance Policies Guarantee Support Payments
Term life policies do figure in a divorce, in that if someone is paying alimony and/or child support, the Court can order the payor to maintain life insurance and name the payees as beneficiaries.
If the payor does not pay the premiums or lets the policy lapse, the support recipient should petition the court to allow him or her to maintain the policy. The cost of the monthly premiums is then added to the support obligation. In that case, the payor is often held in contempt of court and forced to pay the support obligations through probation, in the form of wage garnishment.
In some cases, to make sure the payor keeps paying the premiums, the court orders that the insurance company flag the policy and if any changes are made and notify the recipient. That’s another way to handle it.
Life Insurance on the Custodial Parent Protects Children
The custodial parent might want to maintain life insurance for the benefit of the children, so that if anything happens to him or her, the children are provided for. The amount and term of the policy would be determined considering how many children there are, how old they are and how much income the custodial parent brings in. There are free life insurance calculators online to help figure this out.
Changing the Life Insurance Beneficiary after Divorce
After a divorce, the insured should change the beneficiary to someone other than their ex - unless the court has ordered otherwise for support purposes, of course. Many, many beneficiary disputes arise where this is an issue.
Most married couples name each other on their life insurance policies, but no one wants their ex to get money when they die. It’s appropriate for the children of the couple to be beneficiaries of course.