Divorce Settlement Agreement
In divorces where alimony and child support are part of the settlement agreement, life insurance is almost always necessary and appropriate. Many divorce settlement agreements require both spouses to obtain a certain level of coverage to protect those payments in the event of tragedy.
Ownership
After divorce, life insurance policies purchased in adherence to a court order or divorce settlement agreement are typically structured so that each spouse owns and pays for the policy covering the other. This alleviates any concern regarding policies terminated for nonpayment of premium, and places full responsibility in the hands of the spouse who stands to directly benefit from that policy. Additionally, this prevents any unauthorized changes to the policy.
Beneficiaries
Court ordered life insurance policies purchased to protect alimony and child support payments almost always list the ex-spouse or the children as primary beneficiaries. In the event that one spouse dies, the income that would have been received in the form of alimony or child support is not lost, but instead fully protected and actually guaranteed by the life insurance company.
Minor Children
Perhaps the biggest problem with life insurance after divorce comes when parents list their minor children as beneficiaries. If your only surviving beneficiaries are your minor children, the life insurance carrier will turn the policy proceeds over to the court because they are unable to give money to an underage child. The court will then in turn establish a basic trust for the benefit of the children and choose a trustee to manage that money until each child becomes of age to take possession of the funds.
References
Divorce 360; After Divorce, Life Insurance Matters; Brian O'Connell
Woman's Divorce; Life Insurance Considerations; Noah B. Rosenfarb
This article is a Twisted Nonsense Exclusive! (04/15/2011)
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