Life Insurance and Divorce
Today Brent Novoselsky , Financial Planner in Chicago, gives us his personal thoughts on life insurance during and after divorce:
As a financial planner in Chicago, I often have clients that ask about what happens to life insurance when you’re about to divorce? How do you deal fairly with a soon to-be ex-spouse, yet still make sure you have coverage for the future? Is there a way to provide for adult children of a previous marriage without going broke, especially if you have children from a second or third marriage? Have you spoken to a qualified divorce lawyer about these policies? Here are a number of considerations you should be aware of:
- Don’t assume that your insurance agent or company knows about your circumstances. If you don’t change your beneficiary, your former spouse may receive the proceeds of your policy upon your death. If the designation simply reads, “husband of the insured” or “wife of the insured,” and there is no new spouse, the secondary beneficiary receives the proceeds.
- You may be able to transfer ownership rights of the policy as part of a property settlement during the divorce or to ensure continuation of alimony payments. Your ex-spouse may not press as hard for more support or a greater slice of an ongoing pension if he or she remains the designated beneficiary on a permanent life insurance policy. Of course, you need to ensure that your policy remains a valuable asset by keeping up premium payments.
- Be aware that transferring an existing life insurance policy may carry with it the burden of federal gift tax, unless you transfer the policy prior to divorce. Be sure to discuss this option prior to the finalization of your divorce.
- Don’t overlook the possibilities life insurance may provide for dealing fairly with children from your previous marriage
A permanent life insurance policy can be an immediate “estate replacer” for children from your first marriage. It helps you replicate accumulated assets that you wish to pass on to the children of your first family without neglecting the needs of your new family. Essentially, you purchase a permanent life insurance policy on yourself and designate your adult children as beneficiaries. When you die, proceeds bypass the probate process and pass directly to your adult children. Your immediate spouse and any children from that marriage are left with your accumulated property and assets – so you’ve provided for both families.
If you’re contemplating divorce, don’t forget the options you may have with respect to your life insurance coverage. Divorce is tough enough – don’t overlook the flexibility and security this valuable asset can provide. You should talk to your divorce attorney about this and email me if you have any questions at the link below.
Brent Novoselsky, ChFC is a Vice President of GCG Financial in Bannockburn, Illinois.
Michael C. Craven is a well-known divorce attorney in Chicago, CPA and a partner of the law firm, Beermann Swerdlove, LLP located in the Chicago area. He is highly respected among other divorce attorneys, judges and his clients. He also holds a Master of Tax Law Degree (LLM). For more information about his services,contact Michael at mccraven@beermannlaw.com or at Divorce Lawyers Chicago.
