In most marriages, couples will often discuss important insurance topics in a meeting with their insurance agent, fill out the necessary paperwork to combine health, car, and life insurance, and then put the policies in a safe place. We often overlook the importance of reviewing these documents during a divorce, which can lead to significant financial issues in the future.
If you or your spouse own life insurance, you’ll need to decide if you want to keep your spouse as the primary beneficiary. If you want to name someone else, it’s important to call the insurance company and ask for the correct form as soon as possible.
Sometimes, especially when children are involved, you may want your spouse to remain a beneficiary of your policy. Some states recognize that couples tend to overlook insurance during divorce and have enacted laws that automatically revoke your spouse as a beneficiary of your life insurance policies. This means that even if you want your spouse to receive benefits in the event of your death, you may need to complete an updated form after your divorce.
If you share a joint policy with your spouse, you can agree on one of many options for it after the divorce.
If you and your spouse want to maintain the joint policy after divorce, you will need to work out an agreement for who will maintain the premium payments. It’s important for you both to be on the same page because sometimes non-payment will cost you the policy. Some options for this arrangement may include:
Regardless of your agreement, make sure your paperwork specifies the payment schedule and what will happen if someone doesn’t pay.
An alternative option for life insurance is to transfer ownership of the policy to one spouse. This would allow the other spouse to find an appropriate policy and would eliminate liability for payment to the other spouse.
If this option seems like the best for you and your spouse, you’ll need to decide how the owner spouse will repay past premiums to the non-owner, since only one of you will now get the full benefit of the policy.
In many states, it's routine for the spouse that's paying child support to maintain a life insurance policy with a benefit amount sufficient to cover support liabilities in the event of that parent's death. This way, the parents can make sure the children's financial needs will be met even if the parent paying support passes away unexpectedly.
Perhaps the easiest solution for life insurance is to cancel the joint policy, which allows both spouses to find an individual policy. This option has pros and cons, and both spouses should understand before agreeing to cancel. For example, if you jointly took out the policy when you were younger, or in better health, one or both of you may face increased costs when trying to find a new policy. On the other hand, life insurance companies don’t always tailor joint policies for individual needs, so terminating the old one may allow you to find a less expensive option.
Like life insurance, you have the option of continuing joint auto insurance policies, but if that’s not what you want, review your policy and divorce papers before you call your insurance agent.
Most insurance companies won’t allow you to remove someone from the policy without consent, so make sure that your judgment of divorce addresses this issue, especially if you both leave the marriage with your own vehicles. Fortunately, most attorneys will cover this issue in a marital settlement agreement, and judges will do the same. If the agreement is silent on the issue, you’ll need to obtain your exes permission or ask the court for help.
Be sure that you don’t cancel a joint auto insurance policy before both spouses have alternative coverage. Most states require drivers to always carry insurance and the last thing anyone dealing with divorce wants is to get a ticket or have their vehicle impounded for failure to have proper insurance.
Many married couples rely on one spouse’s health insurance plan for coverage, but divorce ends a spouse’s obligation to provide it to you. To avoid a gap in health insurance, make sure you start talking about this early in your divorce negotiations.
In some cases, you might be able to negotiate health insurance in your divorce agreement. For example, if your spouse has health insurance through an employer, you may be able to ask for the spouse to continue to cover your children for a specific period after the divorce. The success rate of this type of agreement will greatly depend on the specific policy, so you should contact the insurance company before agreeing.
If your spouse has health insurance through an employer, you may qualify for coverage for up to 36-months after the divorce through a federal program called COBRA. This program allows spouses to continue health coverage, but it can be extremely expensive and has specific deadlines. Most couples aren’t in a financial position to afford COBRA, but it may be available as a last resort.
For employed spouses, you may be able to obtain health insurance through your own employer. Many employers offer a credit for not taking sponsored insurance, but if you don’t have another option, you should contact your human resources department to see if coverage is available.
As of 2010, anyone who needed health insurance had the option of purchasing a policy through the Affordable Care Act website. Although some of these policies are expensive, it may allow you to obtain insurance at a more affordable rate than private insurance or COBRA. Unemployed spouses or spouses without the option for employment-sponsored insurance can contact the health care marketplace to see if they qualify for government subsidies, which could make the policies less expensive.
If you and your spouse own a home, you should contact your insurance company to update the name of the homeowner (if it changed) and update any other important information. For example, if your spouse moved out of the home and removed many high-priced belongings, you may be able to reduce the cost of the policy by changing the “contents” portion of your policy.
If you have questions, you should contact a local family law attorney for advice.