Divorce: Effect on Insurance Policies

Federal laws regulating health insurance may allow partners in a marriage to continue the policies after divorce. These regulations require that insurers continue coverage for up to 36 months before the insureds are required to apply for independent coverage. 

If you're getting a divorce, the effect on insurance coverage could come as a bit of a shock if you're not prepared. Health, car, homeowner, and property insurance are a few of the common types of insurance that can be viewed as assets in a marriage. Upon divorce, the responsibility and expense of maintaining appropriate policies through payment of premiums must be taken into account. Payment of premiums on such policies can be part of the divorce settlement.

The following is a discussion of divorce and its effect on insurance policies.

After Divorce: Does Coverage Continue?

Beyond meeting the expense of premiums during this interim period, it may be necessary to assess whether or not a former spouse will be able to qualify for coverage at the end of the COBRA-mandated period.

Conditional provisions, with accompanying insurance arrangements, may be advised to protect against potential changes in health or disability conditions.

Often, people may also carry long-term care policies or have insurance policies as part of their retirement portfolios. Accounting for such assets, equitably dividing such assets and providing for continuation of such coverage are increasingly important in divorce settlements. This is not only because younger people are beginning to anticipate and provide for such needs earlier in life, but also because divorce affects couples of all ages and even marital unions of many decades' duration.

Of special importance in divorce are issues relating to life and disability insurance. Because many life insurance policies may have accrued cash values, these values must be accounted for in the division of assets. However, obtaining such policies' cash surrender values will usually result in termination of the coverage under the policy as written or, at the least, in loan charges and an obligation to pay back the cash amount or to reduce coverage under the policy.

This may not be an acceptable result, especially where continued coverage is required, and other financial arrangements may be required to account for these assets.

Insurance and the Divorce Settlement

Typically, continuation of existing life insurance and disability policies requires consideration in a divorce settlement. The details surrounding the purposes for which such coverage was initially obtained may alter with divorce, which may affect the divorcing partner's ability to keep the policies in force as initially written.

Most importantly, divorce raises an issue whether one spouse maintains -- after divorce -- an insurable interest in the other spouse's life or ability to continue earning an income at levels established or expected at the time of divorce. Earlier law disallowing such coverage on the basis that an insurable interest had ceased to exist has generally given way to recognition of the continuing financial obligations that spouses may have to each other and their offspring following a divorce.

Also, any accident or mortality that would affect the ability of a supporting spouse to meet support obligations or other financial obligations, such as child support, tuition, and other such foreseeable expenses, should be anticipated in advance and taken into account in divorce settlement negotiations. To the extent possible, it may be advisable to carry insurance adequate to meet the expenses of such obligations in the event one or both responsible spouses should pass away.

Designating and Determining Beneficiaries

Often, it will be advised that one or both spouses purchase additional coverage, take out additional policies, transfer ownership of such policies, or make certain that beneficiary designations are updated at the time of divorce. Coverage must be commensurate with established needs and expectations; excessive coverage may be disallowed or challenged by insurers.

Failure to change a beneficiary designation can lead to serious consequences or court actions when the insured dies. Such lawsuits can include those initiated by insurance companies to resolve the thorny issue of which claims should be paid.

These lawsuits protect insurance companies from having to pay more than one claim on a policy and are called interpleader, a type of action brought by an interested third party, such as an insurance company. An interpleader action requires the court to determine who should receive the funds paid by the insurance company or party initiating the lawsuit. An interpleader action may potentially delay payment of needed funds during critical periods of stress and trauma.

Account for All Policies in the Divorce Decree

Including in the divorce decree distinct provisions concerning all insurance policies on an itemized basis, policy by policy, can minimize the confusion that may otherwise result once the divorce is final. This may also spare the parties later negotiations at times when it may be even more difficult (for practical as well as emotional reasons) to negotiate their differences.

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

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

If you're confused, then you should know you're not alone. Matters of divorce and insurance coverage can get thorny in a hurry. An attorney can help make certain that all conditions are satisfied for making any changes in the insurance policies so that they conform to the final divorce decree. Talk to an experienced divorce attorney near you.

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Can I Solve This on My Own or Do I Need an Attorney?

  • You may not need an attorney for a simple divorce with uncontested issues
  • Legal advice is critical to protect your interests in a contested divorce
  • Divorce lawyers can help secure fair custody/visitation, support, and property division

An attorney is a skilled advocate during negotiations and court proceedings. Many attorneys offer free consultations.

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Don't Forget About Estate Planning

Divorce is an ideal time to review your beneficiary designations on life insurance, bank accounts, and retirement accounts. You need to change your estate planning forms to reflect any new choices about your personal representative and beneficiaries. You can change your power of attorney if you named your ex-spouse as your agent. Also, change your health care directive to remove them from making your health care decisions.

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