Life Insurance and Divorce often go hand-in-hand with the many negotiations that take place in divorce proceedings, especially when there are minor children. Both parties will need to come to an agreement on whether life insurance needs to be maintained as a provision of the divorce. Once decided, there are steps you can take to ensure that if benefits need to be paid, they will be paid according to the divorce decree without a lot of disagreement.
The policy owner has all rights and duties associated with ownership of the policy, including the responsibility to pay premiums, the right to designate beneficiaries, to take accelerated death benefits from the policy prior to the insured’s death if diagnosed with a terminal disease, and with policies containing cash value, the right to take policy loans.
Often, the insured and the policy owner are the same person, but it’s not a requirement. One party may choose to buy a policy on the other’s life, with consent. The party who wants the policy owns it and pays the premium, while the other party must cooperate with a medical evaluation. As an alternative to one party owning a policy on the other, a trust can be established and named as the policy owner.
Sometimes, life insurance is part of a settlement to insure a long-term child support and/or alimony obligation. If so, there should be a periodic requirement to show compliance with the provision. Unless a beneficiary is designated as irrevocable, the insurer is not required to inform beneficiaries of any changes to the policy while the insured is alive.
Minors cannot receive the proceeds from a life insurance policy until they are at least age 18 or a court has designated a legal guardian to act on their behalf. Often, the surviving parent will be named as beneficiary to avoid this problem. In some cases, this is the logical way to structure the policy. Another way to handle this is by establishing a trust as the beneficiary.
Payment of Proceeds
Some people simply are not good with money. If your former spouse falls into that category, you may be concerned about how he or she will handle receiving a large sum of money intended to support your children. Most insurers offer settlement options that the policy owner can select prior to the insured’s death, and the beneficiary is not permitted to change how it has been structured.
A review of existing policies is important. Some beneficiaries will likely need to change. An agreement that waives the right to insurance proceeds may not be sufficient. You should actually change the beneficiary designations if you would like to ensure that proceeds go elsewhere.
There are many considerations with life insurance and divorce. For those with children, considering how the policy is structured can help ensure that the policy provides the resources your children need should the policy benefits become payable.
For more information regarding family law, including divorce mediation and litigation, please contact Linda Sorg Ostovitz, Offit Kurman, P.A., at (301) 575-0381 to schedule a consultation.
ABOUT LINDA SORG OSTOVITZ
Linda Sorg Ostovitz is a family law attorney. Her legal experience spans more than 34 years. In this time, she has served as a leader, educator and advocate. Mrs. Ostovitz holds a prestigious fellowship in the American Academy of Matrimonial Lawyers. Currently, she serves as President for the Business Women’s Network of Howard County, by which she was chosen Woman of Distinction for 2014. Mrs. Ostovitz represents clients in Howard, Anne Arundel, Carroll and Baltimore Counties. Her practice focuses exclusively on divorce litigation and mediation, child custody and access, child support, alimony, business valuation, as well as property and asset distribution. In addition to providing legal representation in court, Mrs. Ostovitz provides mediation services to help families come to a fair and legally-sound conclusion outside of the traditional court proceedings.
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