How Does Divorce Affect Life Insurance?
A life insurance policy is a common investment two partners make in a marriage. The insurance plan remains in place with one spouse being the owner of a policy and the other usually being the beneficiary.
In the unfortunate event that the policyholder passes away, the beneficiary is paid out by the policy and is able to access funds that replace the lost income of the spouse that passed away.
So, what happens to a life insurance policy when a couple gets divorced? Is it an asset? Do beneficiaries instantly change? Let’s take a closer look at this easily resolvable aspect of divorce.
Is Life Insurance Something Spouses Can Divide?
In most instances, life insurance policies on their own are not counted as an asset that a couple can divide amongst themselves. However, if a life insurance policy is a cash value policy, the cash value is considered an asset.
Should you and your spouse decide to terminate the policy, the amount will be evenly distributed between both parties.
Should You Change a Life Insurance Policy After Divorce?
The decision to change beneficiaries on a life insurance policy is purely in the hands of the policyholder. Even if the beneficiary spouse asked the policyholder to change the terms of the insurance policy, the request isn’t something that has to be honored.
The only situation where a spouse who wasn’t the policyholder has a say in how a beneficiary is decided is when the spouse is named an irrevocable beneficiary on the policy.
In order to make changes, the policyholder must go through their insurance company. The courts cannot declare changes and immediately implement them. Unless the changes go through a person’s insurance, they aren’t legitimate.
Switching Beneficiary Rights to Your Children?
It’s understandable that a divorcing parent may want to name their child as a new beneficiary. Unfortunately, unless the beneficiary is 18 or older, the State of Texas rules that insurance companies cannot pay out to a minor.
If a person still wants their children to be the direct beneficiary of their life insurance policy, there are different ways to approach the decision:
- Select a custodian to handle the funds for your child
- Create a trust and assign a trustee to manage the trust for the beneficiary
- Trust that their ex-spouse will take care of their children in the event of death
Can You Be Forced to Keep an Ex on Your Life Insurance Policy?
Yes, in many instances where child support and spousal support are involved, the courts can order a person to either keep their ex-spouse as a beneficiary or create a life insurance policy that includes them as the beneficiary.
These orders serve as another form of insurance that guarantees an ex-spouse continues to gain compensation equal to child support or alimony in the event of death.
Get Through the Divorce Process Quickly. With Nilsson Legal Group
If you are on the verge of approaching your spouse with the idea of divorce, don’t make a move until you have the right divorce lawyers on your side. The team of lawyers at Nilsson Legal Group has seen it all and can help you overcome any issue that could arise in your proceedings.
Trust us to ensure that key issues like child custody and spousal support fall in your favor once your divorce is finalized. Contact us today to schedule your free consultation with a member of our firm.