Divorce and Life Insurance
In many provisions for alimony and child support in divorce cases, it is specified that the supporting spouse keep a life insurance policy. This ensures that the children can be provided for, in the event that a supporting parent expires.
The length of time specified for the policy depends on the purpose it fulfills. If it is used as a guarantee for child support, then it can be let go off once the children have reached the age of majority. Although, it can be prolonged should the parent decide to do so. When the policy is used to guarantee alimony, it shall be in place for as long as alimony payments are necessary.
During negotiations for the divorce settlement, it is imperative for the parents to decide on who shall own the life insurance policy. This is essential because the owner has the right to choose who the beneficiaries are and has control over the policy. In order to assure that the policy remains as agreed upon in the settlement, the custodial parent should ideally be the owner. Over time, ex-couples may lose all communication with each other. It will give more security to the parent who has custody of the children. To protect the heirs, include certain provisions in the settlement. An example is, even if the policy allows for the beneficiary to be changed, the children should still be entitled to a portion of your former husband’s estate that is equal the value of the death benefit.
Ownership right to the policy may be transferred as a portion of property settlement or alimony payments. An ex-spouse might not demand for a far greater amount knowing that he or she will benefit from the insurance policy. When transferring a term policy before divorce, the federal gift tax can be avoided. Be sure to mention this option to your lawyers.
It is possible to name the children from the first marriage as beneficiaries to a permanent life insurance policy. Upon death, the cash benefit will be given to them. While for the children of the current marriage will get the accrued assets like property. All children should be given their fair share, if not, the children from the first family can sue for a part of the estate of the deceased regardless if their custodial parent receives alimony.
Life insurance is connected to the different situations occurring in the policy holder’s personal life. When a person’s needs change, it is wise to review the insurance policies as well. They must always be up to date. This will protect all family members from future law suits and painful experiences.
The insurance company will not know about its customer’s circumstances unless they are informed. Review the beneficiaries because if it only states “husband or wife” and no new spouse is mentioned, the secondary beneficiary will receive the entire amount. Remember that insurance policies are outside of the “estate law”, the ones who are named will be the sole beneficiaries.