Insurance Coverage and Support Guarantees After Divorce

For example, maintaining proper health insurance for each party is a priority in divorce proceedings. Payment of premiums for health insurance can be part of the divorce settlement.

This article discusses the divorce process and its effect on insurance and other benefits.

After Divorce: Does Health Care Coverage Continue?

If each spouse's employer provides group health care insurance, a divorce may mean they keep their own health insurance. If one spouse provides health insurance to both parties (and the children), things can get more complicated.

You may be eligible to get continuing health care or COBRA coverage through your spouse's employer plan for a limited time after a divorce. COBRA stands for the Consolidated Omnibus Budget Reconciliation Act. COBRA can extend health benefits when a person has a qualifying event, such as a job loss or divorce. This can give you time to look for new coverage. The U.S. Department of Labor administers COBRA.

Premiums for COBRA benefits are often higher than those for regular employee plans. While a divorce is pending, separating couples must work out how to pay the premiums during this period.

If you choose continuing coverage through COBRA, consider coverage options, costs, and any special enrollment period. As part of a settlement agreement, parties often assess whether a former spouse can qualify for independent coverage at the end of the COBRA-mandated period.

Access to affordable health insurance can be a key issue in any divorce. When reasonable health insurance is unavailable for a spouse, parties may enter into a legal separation instead of a divorce. Under a legal separation, the parties stay married. They can continue to be under the same health insurance policy.

Legally separated couples can still divide assets and debts and address all other issues found in a divorce. But they can't remarry unless they convert the legal separation into a divorce.

Sometimes, one or both spouses may want to review their Medicaid or Medicare benefits eligibility. Medicaid coverage will depend on their income level. Medicare becomes an option when you turn 65 or have a disability. In other situations, the spouse likely to lose health benefits may need to go on the health insurance marketplace to buy a private policy or one under the Affordable Care Act (ACA).

Divorcing parties can compare the cost of new health insurance for spouses who will lose coverage at divorce. Differences in premiums, deductibles, and out-of-pocket health care expenses can affect a person's budget. It may cause adjustments to spousal support. It may change other parts of the parties' financial settlement.

In a divorce with children, the children's health insurance may not need to change. The spouse providing the family plan will likely be able to continue coverage for dependent children on that plan. If the children get coverage under a Medicaid plan, the parent coordinating care may need child custody rights to keep such a plan in place.

Life Insurance and Disability Insurance After a Divorce Settlement

People may carry short or long-term disability insurance or life insurance policies as part of their retirement portfolios. Accounting for and dividing such assets equitably has become increasingly important in divorce settlements.

This is not only because younger people are beginning to expect and provide for such needs earlier in life. Divorce can come at any time. The longer the marriage, the more spouses have relied on these assets for retirement.

Certain life insurance policies may have accrued cash values. These types of policies and their values must be included in the division of assets. But, getting the cash value of a policy will usually result in the termination of the coverage. It could also lead to:

• Loan charges and an obligation to pay back the cash amount
• Reduced coverage under the policy

Term life insurance policies do not hold cash value. They are not assets in the sense that the parties can divide them. But, it may be important to maintain backup financial support obligations from one spouse to the other.

As a result, continuing existing disability and life insurance policies becomes an important consideration in a divorce settlement. The purposes for which a party bought such coverage may alter with divorce, and a settlement needs to take that into account.

Divorce raises the issue of whether one spouse maintains an "insurable interest" in the other spouse's life or ability to continue earning an income. For many years, courts didn't allow continuing coverage. They thought the insurable interest ceased to exist after a divorce. But today, courts recognize the continued financial obligations spouses have to each other and their children following a divorce.

So, divorce settlement negotiations may address the need to maintain or provide accident, disability, or life insurance. Such insurance can back up the ability of a paying spouse to meet financial obligations. This can include:

• Child support
• Spousal support
• Private school tuition
• Other foreseeable expenses

A court may force a spouse to carry insurance that can fulfill these obligations in the event they die.

Updating Auto and Home Insurance After Divorce

Divorcing couples must also make appropriate adjustments to auto and home insurance policies. This can happen once the parties separate or before the court issues the final decree. You should check with the insurance company handling your current policy for more specific advice.

For some companies, the time you separate households will be key. They may demand a new policy if a vehicle under the marital policy is not parked at the marital home. Likewise, once insured valuables leave the marital home, you may need to revise that policy and start a new one for the new house.

Designating and Determining Beneficiaries

Parties looking to guarantee support obligations have several options. These may include taking out additional life insurance coverage, transferring ownership of such policies, or updating beneficiary designations. Court orders should ensure that coverage relates directly to established needs and expectations. Insurers may disallow or challenge excessive coverage.

Like changes with retirement accounts, settlement agreements need to be clear on who has the responsibility to change a beneficiary and the timeframe for doing so. Failure to change a beneficiary designation for health insurance, life insurance, retirement benefits, or bank accounts can lead to serious consequences. Court actions can include ones initiated by insurance companies to resolve which claims should get paid after a former spouse's death.

These lawsuits protect insurance companies from paying more than one claim on a policy. An interested third party, such as an insurer, can bring an interpleader action. An interpleader case requires the court to determine who should get the funds paid by the insurance company or party initiating the lawsuit. Such actions may delay payment of needed funds during critical periods of stress and trauma.

Account for All Policies in the Divorce Decree

It's best to include distinct provisions on all insurance policies in the divorce decree on an itemized basis. Setting clear terms, policy by policy, can cut the confusion that may result once the divorce is final. This may also spare the parties later negotiations when finding common ground may be even more difficult.

Such provisions in a divorce decree must clearly reflect the parties' intent and be easily understood by third parties.

Concerned About Your Divorce's Effect on Insurance Policies? Call a Lawyer

If you're confused, you should know you're not alone. Matters of divorce and insurance coverage can get thorny quickly.

A family law attorney can help ensure timely and appropriate changes in your insurance policies are made. They can review your final divorce decree and make sure it speaks clearly on these matters. This will prevent delays by a third-party insurance company trying to interpret your orders. You can talk to an experienced divorce lawyer near you.