Divorce is an emotional time as you navigate the division of marital assets and debts, spousal support payments, and child custody arrangements. A significant part of this process involves sorting through any life insurance policies that either of you hold or must acquire. Your change in circumstances requires careful consideration to handle this issue appropriately. Here is a brief guide to help explain how life insurance works in a divorce.

Tips for Managing a Life Insurance Policy

Often, divorce settlements stipulate that the noncustodial parent must obtain a life insurance policy that will continue providing alimony and child support to the custodial parent. As such, understanding your obligations for coverage is necessary if you will not have primary custody.

Next, you must determine how much coverage will cover the future financial interests of your children and fulfill the court-ordered payments. If you already have a policy, you may need to restructure it to fit the new requirements.

Also, you should decide which spouse will pay the premiums. For example, the custodial parent may wish to take the policy out on their former spouse and make the payments themselves. This ensures that there aren’t any missed payments that could cause the policy to lapse.

Naming Your Children As Beneficiaries

Married couples typically name each other as the primary beneficiary on life insurance policies. If this models your situation, you will likely want to designate a new beneficiary after the divorce. While your next choice may be the children, the law doesn’t allow minors to receive death benefit payouts directly.

This means the court would have to name a guardian to oversee the money until your children reach the legal age. To avoid this, you can appoint an adult custodian to be responsible for the money. Alternatively, you can set up a trust to manage and distribute the funds.

Alternative Beneficiary Options

If you do not have any children, you have a variety of options for changing the beneficiary. For example, you may name an aging parent who counts on you for financial support or another family member that you want to provide for after passing away.

You might also designate your business or business partner to ensure financial stability for the company. Other common entities that you can designate are your estate or favorite charity. For the former, the trustee will distribute the death benefits in the same manner as the rest of your assets.

Whether you need to modify your current life insurance policy or purchase a new one, contact Stautberg Financial Group for help meeting your coverage goals. They offer high-quality solutions to protect the financial well-being of your loved ones. Since 1975, this family-owned company has been serving residents throughout Cincinnati, OH, and the Tri-State area. Call (513) 821-6300 to schedule an appointment, or visit their website to learn more about your options.