Divorce and Life Insurance

July 26, 2010

There’s a common statistic which says that roughly fifty percent of all marriages in the United States will end in divorce.

If you’re among the fifty percent, because you’re in the process of or have gone through a divorce, chances are good that your life insurance policy wasn’t a major point of concern. After all, when you’re discussing custody or arguing over who gets the house and who gets the dog, insurance policies don’t seem all that important.

Nevertheless, one of the questions that will eventually arise is what to do about the spouse who is the designated beneficiary on your life insurance policy.

Unfortunately, there is no one true solution to this issue. In some cases, you may not have a choice in how the policy should be handled, because the divorce settlement will dictate that, perhaps by preventing any changes to benificiaries or ownership, or making subsequent changes invalid. Alternatively, the court could rule that in order to ensure that child support or alimony continues, the life insurance policy must be maintained for a specific length of time. The court can also rule on which party will maintain ownership of the policy, and therefore has the ultimate decision on beneficiaries.

In some cases, courts also establish a lapse provision, which ruling will generally specify that if the policy lapses, the divorced spouse and children are entitled to a percentage of the policyholder’s estate that is usually equal to the death benefit of the lapsed policy.

We aren’t lawyers, and wouldn’t presume to offer legal advice, but if you are in the process of a divorce, we suggest you bring up any life insurance policies during the settlement negotiations. Doing so now could save a lot more heartache later.