Divorce & Distribution of Life Insurance Benefits

By Heather Frances J.D.

Life insurance needs often change with divorce. Depending on the type of insurance, the life insurance policy can even be divided as marital property in your divorce decree. If you choose to list your ex-spouse or your child as the beneficiary of your policy after your divorce, make sure the beneficiary designation is in accordance with your state’s laws to avoid unintended results.

Life insurance needs often change with divorce. Depending on the type of insurance, the life insurance policy can even be divided as marital property in your divorce decree. If you choose to list your ex-spouse or your child as the beneficiary of your policy after your divorce, make sure the beneficiary designation is in accordance with your state’s laws to avoid unintended results.

Life Insurance as Property

There are two major types of life insurance policies: whole life and term life. Term life insurance policies are only good for a certain period of time (the “term”) and only if you continue to make payments during that period. Whole life policies are good for your entire life as long as you keep up with the payments, and the whole life policy can be cashed in before the insured person’s death. Consequently, whole life policies may be treated as marital property in a divorce, subject to division by the divorce court. Life insurance is often addressed by the marital settlement agreement, and the court may address life insurance benefits in your divorce decree.

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Beneficiary Designation

Depending on your state’s laws, your divorce court may be able to order a spouse to list his ex-spouse as the beneficiary of his life insurance policy, often as a way to replace alimony or child support payments when one spouse dies. If the insured spouse lets his life insurance policy lapse or removes his ex-spouse as the beneficiary, the ex-spouse can file a claim against the insured spouse’s estate when he dies. If this claim is successful, the ex-spouse may obtain money from the deceased spouse’s estate to replace the life insurance proceeds she was supposed to receive.

Insurable Interest

If you are financially dependent on your ex-spouse’s income, you have an insurable interest in your ex-spouse. For example, if you rely on alimony or child support payments, your ex-spouse’s death could cause a financial hardship; this gives you an insurable interest. If you have such an interest, you may be able to purchase a life insurance policy on your ex-spouse’s life. If you do not have an insurable interest and life insurance is not addressed in your divorce decree, the insurance company may not be able to award you any money when your ex-spouse dies.

Children as Beneficiaries

Many divorced spouses attempt to name their children as beneficiaries instead of their ex-spouse, but minor children cannot receive life insurance benefits directly. They must reach the age of majority to receive the benefits. You can, however, set up a trust or guardianship for your children to allow someone else to manage the money for them until they reach majority. In the meantime, the money can be used for their care.

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Are Insurance Proceeds Community Property in Idaho?

References

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The Legality of Forced Life Insurance Policies in Divorce

Divorce may not end the spouses’ dependence on each other; one former spouse may rely on the other for ongoing child support and alimony payments. If the paying spouse dies, the receiving spouse may find it difficult to make ends meet, so a divorce decree can require one ex-spouse to carry a life insurance policy and assign the proceeds of that policy to the other ex-spouse.

Can an Ex-wife Be the Beneficiary on Her Ex-husband's Life Insurance in Texas?

When married people buy life insurance, they usually name each other as beneficiaries to allow the family to maintain its usual standard of living after one spouse dies. After the death of the insured person, the insurance company pays the proceeds of the policy to the beneficiary named on the contract. Recognizing that a divorced person may no longer want his former spouse to receive the proceeds of the policy, the Texas legislature enacted a section of the Texas Family Code to address this situation.

Rights of Primary Beneficiary Vs. Contingent Beneficiary

You can’t take your assets with you when you die, but you can create an estate plan to leave them to your loved ones using a will, trust or other legal structure. Certain types of assets, such as life insurance, are even transferable directly to another person without going through any complicated processes after you die. However, your loved ones typically do not have a right to your assets while you are still alive.

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