Life insurance in a divorce: Why is it necessary?
Dear Clients and Friends,
The typical divorce involves a laundry list of issues to address, ranging from who gets the house, how the cars are divvied up and who ends up with the dog to issues of custody, child support and alimony.
You can add life insurance to the list. This issue typically comes into play in cases where one spouse will be paying child and/or spousal support. If the paying spouse already has a life insurance policy in place, the court will likely order that spouse to keep the policy and keep their ex-spouse as its beneficiary. This is to ensure that if the payor spouse passes away, there is sufficient support for the recipient spouse and/or the kids.
If there is no life insurance policy in place, the court may order the paying spouse to purchase a policy for the benefit of the recipient spouse or the children.
The amount of insurance required however, can be tricky. One way to calculate it is to determine how much child support the paying spouse will be paying until the children become adults and use that amount for coverage. But this does not take into account other potential expenses, such as unexpected medical expenses, costly activities the kids may be involved in and college expenses.
It’s an even trickier problem for alimony. If the divorce agreement calls for $1 million in alimony over 10 years, $1 million in life insurance might seem reasonable. But what if the payor spouse dies the next year? Then the recipient spouse is getting the benefit of the full $1 million nine years early. That doesn’t seem fair to the payor.
If the payor spouse is older or not in good health, life insurance may be unreasonably expensive if it’s available at all, in which case the parties may need to look to other financial vehicles.
These are only a few of the issues that can arise.
We continue to successfully advise and represent satisfied clients in resolving all of their family law issues from Divorces, to Estate Planning, to Probate filings and Trust estate administration - and we continue to invite you all to call us for a free phone evaluation of your family law concerns.