Going through a divorce is rough. Especially if there are kids involved. There’s a lot to work through. Where will everyone live? How will the assets be split? Will child support be required and paid? What’s fair? While thinking about your life insurance policies may not seem important, in fact it becomes even more critical to do so. Or at the very least including, or allowing, for a Life Insurance policy in the financial settlement is essential.
You want to make sure that your children will be ok and even though you may be confident they’ll be well cared for in your possible absence, there are so many financial considerations to plan for. This might include:
- Where will the children live if the parent who has main custody of the children dies, will a larger home be needed?
- Cost of extra childcare that the other parent would need to hire
- Expenses like music, sports lessons, school fees, holiday programs, braces and university fees. These would need to be paid for with one income rather than 2 supporting parents, will this be possible?
- Helping your adult children buy their first homes or pay for a wedding.
Some divorce settlements will stipulate that the parent paying child support, or in the event of joint custody both parents, should carry a life insurance policy. This to ensure that the children will still be provided for should a parent die. How long the policy needs to be maintained for depends on the intention of the policy. For example if it’s just to cover child support it might be terminated once the children reach 18. However it could, and should be, maintained for longer if the parents agree.
The crucial bit is designating the owner of the policy or policies. The owner of the policy (as opposed to the Life Insured or beneficiary) controls the policy and has the right to add, change or remove beneficiaries as they see fit, with or without the life insureds consent.
For example. Bob and Mary divorce after 10 years of marriage. They have children, Lucy and Benjamin aged 5 and 3. Bob has been the main income earner while Mary stays home with the children. Even with Bob’s child support Mary is now going to have to return to work which has caused some tension while they have been working things out. They share custody but Mary will have the children the majority of the time. They took out Life Insurance when they had Lucy and are the owners of each other’s policy. Bob’s parents are also financially dependent on him.
As the owner of Bob’s policy, Mary can make any changes she likes without Bobs consent. So even though the intention is for the children to benefit, and in fact Bob would want his parents taken care of as well, Mary can remove them all as beneficiaries and ensure that any claim money is paid directly to her were something to happen to Bob.
This can get complicated, and quite upsetting, once new partners and step children are added to the mix.
The way to avoid ‘more mess‘, for want of a better word, is to name both parents as the owners of both policies. That way neither party can make a change without the other having to agree to it.
The other alternative is to include in your divorce agreement a provision that if a beneficiary is changed, or if the policy is allowed to lapse, you, you or your children would be entitled to a portion of your ex-partner’s estate equal in value to the cover offered by the insurance policy he or she was supposed to retain.
If things get really tough and your divorced partner won’t even talk about. Consider taking out a policy yourself on the life of your ex-partner. Even a small amount can help.
It’s not as hard to do as it sounds. Your divorce lawyers or support team will be able to help you. But if you’re confused give us a call. Pinnacle Life also offers a special events increase for life cover, if you recently divorced (or married or became a parent, or took out a mortgage), that you may be eligible for. Stay focused on what’s important which is ensuring that everyone has the life you want for them even if you’re not there.
