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Life insurance can get tricky during a divorce.

There are many possibilities to consider when getting a divorce: While term life insurance won’t be considered an asset, a cash value policy like whole or universal life can be. Because of this, life insurance may be considered part of a divorce settlement. Additionally, a court may mandate that one of the parties purchases a life insurance policy with the other as a beneficiary.

After a divorce, you should also update your life insurance beneficiaries accordingly. For example, if you had listed your spouse as your beneficiary, you may want to update the beneficiary designation to someone new.

When you’ll need to consider life insurance a marital asset

A permanent policy’s accumulated cash value is considered a marital asset. When splitting assets, it may be as simple as withdrawing the cash from the policy and splitting it. After which, you’ll cancel the policy.

Sometimes, you may ask the court to keep the policy — but there’s a chance you’ll have to keep your former spouse on the policy as a beneficiary.

Pension protection with life insurance

While child care is the main reason for a divorce-related life insurance policy, pension protection is another consideration.

Police, firefighters and other civil servants often have pensions that build until retirement, when the two ex-spouses would then be entitled to an equal share. The Uniformed Services Former Spouses Protection Act entitles military spouses to a portion of retirement pay.

Since an ex’s early death can threaten the pension amount that a former couple would share, a life insurance policy could also protect the future earnings of an ex-spouse.

Why courts may order you to buy a policy on your former spouse

“Once you start a matrimonial action, the state orders everything frozen,” says New York City divorce attorney Bruce Provda, partner at Provda Law. “You can’t change, sell or encumber any asset without a court order.”

After filing, each spouse has to fill out forms detailing assets and liabilities, including mortgage, checking and savings accounts, credit and debt, investments, retirement and pension plans and, if relevant, insurance. Each one must also list the names and ages of their children and any other dependents.

Sometimes, the court will mandate that one ex-spouse must have a policy with the other as a beneficiary. This usually happens if one spouse owes the other child support or alimony. The life insurance policy would be in place to replace the child support or alimony if the paying spouse died.



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Updating your policy after a divorce

If you have a term life insurance policy or didn’t split your policy with your former spouse, make sure your policy is updated after the divorce. This may mean your former spouse is no longer the beneficiary on the policy.

If you don’t adjust the beneficiary designation on your policy after your divorce and then die, the death benefit will be paid out to whoever is listed in your policy — even if it’s a former spouse. A will or any written document cannot override a life insurance policy designation.

Getting divorced is difficult regardless of the situation. Talk to a financial advisor when navigating life insurance during a divorce.

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