LIFE INSURANCE- MISTAKES TO AVOID
A life insurance policy is an important asset to discuss during divorce mediation that often gets overlooked. Certain types of life insurance policies acquired during a marriage, like whole and universal life insurance policies, will have a cash value that could be considered marital property and shared/split as part of the divorce. Also, life insurance can be a valuable tool used to protect a divorcing spouse who depends upon income flowing in for supporting his/her self and for the children in the event of an untimely death. Here are some other important issues to think about:
1) Naming Your Spouse as Beneficiary- When spouses have life insurance policies, it is most common they name each other as the primary beneficiaries. Once the divorce process starts, should that change? The answer is it depends. If there are young children involved who are going to require child support, keeping the life insurance policy intact may be very important.
However, who should be named the beneficiary after the divorce? Some mistakenly believe it is best to switch from naming the former spouse as beneficiary to the children. This approach can cause delays and trigger court proceedings if the children are under 18 years old, as a custodian will have to be appointed to manage the funds for the minor children. It may be more prudent to name your spouse, or a trusted family member of your choice, as custodian.
2) Young Adult Children as Beneficiaries-
Naming young adults as beneficiaries can be risky. Would you trust an 18 year old to manage large sums of money in a responsible manner? Many would answer no and would want some protections in place. One way to add in protection is to set up a trust with specifics for how the money can and should be distributed until the young adults reach a certain age.
3) Your Will vs Your Life Insurance Policy
If there is a conflict between the terms of your Will and your life insurance policy, the life insurance policy will govern, at least as respects who is entitled to the policy proceeds. It is important to remember to change your beneficiary designation under your policy if your wishes changes and not just write it in your Will.
4) Divorcing without Children
If you don't have children and you are getting a divorce, and if you don’t want your former spouse to be the beneficiary, you may wish to cash out your policy, if you are able to do so, or cancel your policy, or designate another beneficiary. Just don’t forget to do something if you don’t want your former spouse to unwittingly become the beneficiary.
Yes, Lori Greene is an attorney but she is not your attorney and this article does not create an attorney client relationship. This article is legal information and should not be seen as legal advice. You should consult with an attorney regarding your situation before you rely on this information.