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Life insurance & divorce: What to do before & after

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When you have life insurance, it's a good idea to review your contract yearly to confirm you have the right coverage for your needs and don't need to make beneficiary changes. The same practice should happen after any significant life event, such as having children or getting married or divorced.

Particularly in the case where you're separating from your spouse, you may feel emotional and overwhelmed. Life insurance may not be top of mind. But as you rearrange your financial affairs, it's essential to understand how divorce can prompt changes in your life insurance coverage.

Here's what to know about life insurance and divorce to help you make the best decisions based on your needs.

What to do before divorce with your existing life insurance

Before you decide what to do with your existing coverage, understand the contract's terms, benefits and limitations.

Some joint life insurance contracts cover both spouses and pay a death benefit either when the first spouse dies or after you both pass away. Other contracts may have a joint tenancy component, where both of you have equal ownership of the contract and must agree to changes. Rights of survivorship often are aligned with joint tenancy contracts, which means if one spouse dies, the benefits go to the surviving spouse.

Review your coverage and evaluate whether you want to split assets, terminate your contract or change who gets the death benefit to align with your current needs.

Determine if the cash value is marital property

During a divorce, you may have to review your assets, including bank accounts and investments, to determine their worth and how to distribute them. Life insurance also could be considered a marital asset. However, it depends on your contract.

If you have coverage with a cash value component, like a whole life insurance contract, that cash value might be considered a marital asset. So it may be subject to division during a divorce.

Term life insurance doesn't have a cash value component, so there are no assets to divide. This type of contract pays out a death benefit once you've passed and has no monetary value while you're alive.

Options when changing a life insurance contract during a divorce

When going through a divorce, you and your former spouse can handle the contract in a few ways:

  • One spouse keeps the contract. With cash value life insurance, one spouse may offer additional assets to compensate for the cash value they were entitled to.
  • You terminate the contract. You can end your life insurance contract and split the assets between you. However, you may need to pay surrender fees or taxes.
  • You transfer ownership. Prior to divorce, one spouse can transfer ownership of the contract to the other in exchange for other assets or as part of alimony or child support arrangements. This may result in creating a taxable death benefit so be sure to consult a tax advisor before choosing to transfer a contract. This also could be court mandated as a result of the divorce. There are unlimited marital transfers, however if this is attempted after the divorce is final, complications could arise.
  • You maintain the contract but change the beneficiaries. One of you keeps the current contract but changes the beneficiaries to your children or a trust until your kids get older.

Each option has benefits and disadvantages. It can help to consult a financial advisor or legal professional to determine what's right for you.

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Changes to consider for life insurance after divorce

Once you go through divorce proceedings, you'll want to update your life insurance coverage accordingly. Here are a few areas to consider:

Updating your beneficiaries

Most life insurance contracts don't automatically update or remove beneficiaries after a divorce. Only the contract owner can change the beneficiary. Contact your insurer to change beneficiaries if you don't want your ex-spouse to receive your death benefit.

However, if you're wondering if you can keep life insurance on an ex-spouse, the answer is yes. Some divorce settlements may require it. Or you may agree to it with your former spouse if they pay alimony or you have kids.

Continuing protection for your children

For many parents, life insurance helps provide financial security to their loved ones after they're gone. It can play a role in securing your child's future, keeping their quality of life stable and covering debt and educational costs after you're gone.

Having a death benefit can help financially protect you and your kids if your former spouse passes away and can no longer contribute to their care. If your children are younger, you could name the person who would be their guardian as a beneficiary. Or you may consider creating a trust, which can help avoid probate and may have some tax advantages. You'll want to speak with your tax professional and financial advisor to learn if it could work for you.

Factoring in alimony or child support

If your former spouse is paying alimony or child support, you may request that they have a life insurance contract so those payments can continue if they pass away unexpectedly.

Requiring your ex-spouse to keep an active contract can help provide some financial stability if they pass away, especially if your kids are still young. You'll need your spouse's consent to set it up.

Life insurance concerns when you're separated

Even if you're not together, you may take care of some financial responsibilities jointly, such as a mortgage, debt payments and other bills. Keeping your coverage active can be a way to help cover these costs if the unexpected happens.

As you go through the separation process, it's a good idea to speak with a lawyer and financial advisor for guidance on how to best proceed with coverage, if you should change the beneficiary on your contract and other contract ownership concerns.

What can happen if you don't change your life insurance in a divorce

Discussing life insurance may become a back-burner issue with all the ups and downs of the divorce process. However, even if you and your former spouse have a good relationship and amicable divorce, keeping a joint life insurance contract can have risks, including:

  • The contract's owners control its terms, and you and your former spouse may not be on the same page if one of you wants a new person to be the beneficiary.
  • Without updating, the death benefit may go to your former spouse even if that no longer aligns with your wishes.

Selecting new life insurance contracts after a divorce

Following a divorce, reevaluate your life insurance needs. As you transition to single finances, consider your options, including:

  • Term life insurance can meet temporary needs, such as until your kids become adults.
  • Whole or universal life are permanent contracts with cash value components that may help you save more for retirement.
  • Variable universal life also lasts for life and has a cash value component that can be invested; however, it may be a riskier option.

When rebuilding life insurance as a single person post-divorce, consider your current needs, future goals and your dependents' well-being. You also may want to make sure premiums are within your budget, your obligations are covered and your beneficiaries are updated.

Get the help you need navigating life insurance & divorce

Going through a divorce can be a stressful, challenging and emotionally overwhelming time. As part of the process, you may need to assess your life insurance contract to determine how it can cover your needs and adapt to your new life.

Working with a Thrivent financial advisor can help you navigate these changes. They can review your financial situation and savings goals and find the right coverage for you.

Investing involves risk, including the possible loss of principal. The prospectus and summary prospectuses of the variable universal life contract and underlying investment options contain information on investment objectives, risks, charges and expenses, which investors should read carefully and consider before investing. Available at 

Thrivent and its financial advisors and professionals do not provide legal, accounting or tax advice. Consult your attorney or tax professional.

If requested, a licensed insurance agent/producer may contact you and financial solutions, including insurance may be solicited.