Protect yourself from 'insurance revenge' during divorce
In the heat of divorce, spouses who are breaking up often do all kinds of things to get back at one another.
A wife infuriated by her husband's infidelity may go on a shopping spree, maxing out the couple's credit cards or emptying the family bank account. A husband who is bitter about his wife's taking custody of the kids may refuse to provide child support or balk at paying alimony.
When it comes to insurance, individuals dissolving a marriage can inflict serious financial and personal damage on one another or their children.
Fortunately, such problems can be avoided. Here are some ways to protect yourself from insurance revenge when you and your spouse call it quits.
Threats to your home and homeowners insurance
Eustace Greaves Jr. is an insurance industry veteran who has owned Greaves Financial Services in Brooklyn, N.Y., for more than 30 years. He recalls one case involving a separated couple where the husband allegedly entered the wife's home while she was at work and put a nail in a basement pipe. "He pulled it out just enough so that a week later the water pressure caused the nail to pop out," says Greaves.
This same couple had a water damage claim on their home insurance three years prior. So this second incident cost the wife dearly.
"Not only did she have a major flood which resulted in a great deal of damage, but at renewal she was canceled," says Greaves.
Although it was never proven that the ex-husband was responsible for the nail-in-the-pipe plot, Greaves' client was convinced of the husband's guilt, since her ex was the only other person with a key and he knew the alarm code. The lesson: If you're going through a divorce, avoid a potential home insurance claim by changing your door locks and home alarm code.
If such precautions seem unnecessary, consider that some divorcing spouses have caused even greater damage. In New York, an angry man going through a divorce blew up the Manhattan townhouse he had shared with his wife. Sadly, he also died from injuries suffered in the blast.
Getting the life insurance
When underage children are involved, Greaves suggests divorcing spouses make each other the irrevocable beneficiaries of life insurance policies. That way you'll always know that the children will be provided for.
Another tip: In a divorce agreement, include the legal requirement to maintain health and life insurance. Greaves had one divorcing client rush her young son to the emergency room only to find out her ex-husband had dropped the entire family from his health plan.
Watch out for car insurance shenanigans by regularly checking your license plates. Why? In some jurisdictions, a bitter ex-spouse could plot to end a policy mid-term. He or she could remove the license plates from a vehicle, take the title and registration to the DMV and turn them in, then fill out forms with an insurer claiming the vehicle is no longer in use.
"If you're driving around with no plates and didn't notice it, you could easily get the cops behind you, asking for license and registration," says Greaves. "When they run the car and find that you're driving an uninsured or unregistered vehicle, the next thing you know you might find yourself in central booking."
Laws that prevent insurance revenge
Residents of some states have built-in legal protections to prevent abuse of auto, life and health insurance.
"In California, we have statutes to guard against insurance revenge," says John Harding, a Pleasanton, Calif.-based family law attorney who runs the law firm Harding & Associates.
"When you file for divorce in California, there are automatic temporary restraining orders that take effect, and standing court orders prohibit either party from canceling any insurance."
You have to get the express written consent of the other spouse or a court order to cancel insurance, Harding notes. What happens if a person allows an insurance policy to lapse out of simple distraction, or actively cancels a policy out of animosity during a divorce? In either scenario "you're in contempt of court," Harding says.
Legalities notwithstanding, some California residents still try to cancel insurance coverage during a divorce, according to Kelly Chang Rickert, a Certified Family Law Specialist in Los Angeles. That's why she recommends sending a "notice of adverse interest" to insurance companies.
"This is simply a letter letting your insurer know that you are going through a divorce and that they are not allowed to cancel you as a beneficiary or to cancel your insurance while the divorce is pending," says Chang Rickert.
Even if the law doesn't require it, Harding strongly advises people in these situations to keep their insurance policies in force.
"It's money well-spent because all of those policies safeguard you against risk and adverse events," Harding says. "This is not an area where you want to be shortsighted, stupid or spiteful."