How Does Life Insurance Impact a Divorce?
Significant life changes, such as marriage, parenthood, and divorce impact our lives in ways we may not even realize. At these times, it is important to review and reassess important legal and financial arrangements, including life insurance. Not only can life insurance provide welcome financial support when a marriage ends, but the terms of your policy may change as you determine alimony and child support.
Life Insurance as Financial Support
What many divorcing people might not know is some companies allow loans or withdrawals on the cash value of their life insurance policy. This can be an important source of income for those facing mounting legal expenses related to their divorce and the division of a household. Unlike other options, taking a loan on your life insurance plan can keep you from liquidating assets or tapping into funds designated for your beneficiaries. In the event of your ex-spouse’s tragic passing, an established life insurance plan can relieve undue added stress and worry. Life insurance can:
- Replace an ex-spouse’s lost income that went toward alimony
- Pay off an ex-spouse’s debt with a tax-free loan on the policy
- Ensure your children receive a fair inheritance
- Help with college or other future expenses for the children
Life Insurance Details to Review
During the divorce process, consider the following details regarding your life insurance policy. Ideally, any changes should be made before you both sign the divorce papers. It is essential to carefully review your divorce agreement as it relates to both life insurance policies. Should your ex-spouse pass away, life insurance will protect alimony and/or child support payments after their death. Work with a divorce lawyer to ensure you clearly understand and are satisfied with the terms.
Your attorney and your insurance agent can recommend the ideal amount of coverage based on your situation. And conversely, your policy should offer sufficient support for your ex-spouse to raise the children should you pass away. You also need to reconsider and possibly re-designate your beneficiaries. Some states automatically disqualify an ex-spouse from receiving life insurance proceeds unless specifically re-designated after the divorce. Depending on the ages of your children, you can make them beneficiaries or assign an adult custodian to manage their proceeds. Both spouses need to agree on who will pay the premiums and request that each receive duplicate copies of bills, payments, and lapse notices. Because any lapse can leave you without coverage when you need it most, make this step a priority.
Bucks County Divorce Lawyers at Freedman & Lorry, P.C. Protect the Financial Future of Clients Facing Divorce
Life insurance is an important tool for protecting your financial future. Yet, it requires additional considerations. It is always smart to enlist a Bucks County divorce lawyer at Freedman & Lorry, P.C. to ensure your divorce agreement accurately reflects your life insurance terms in a way that offers financial stability should you or your ex-spouse pass away.
Call 888-999-1962 or contact us online to schedule a free consultation today. Located in Philadelphia, Cherry Hill, New Jersey, and Pinehurst, North Carolina, we serve clients throughout Pennsylvania.