By: Martin M. Shenkman, CPA, MBA, JD
Divorce changes virtually every aspect of your financial, legal, and tax picture. Insurance is critical to that picture and must be critically assessed during and post-divorce. Usually, the only aspect of insurance that draws attention in the case of a divorce is a property settlement agreement. This addresses insurance to some extent, in that a spouse who is paying alimony or child support must have some sort of insurance, usually life insurance. However, even this aspect is not addressed enough.
During a divorce you must reevaluate everything. If you have a 2nd -to- die policy, it may have come with a “divorce-out,” in which you can separate that policy into two separate policies. This is advantageous because you do not have to get another medical examination. Furthermore, before delving deeper into the issues of insurance and divorce, make sure to change the beneficiaries on individual life and group life insurance, IRAs, 401ks, and any investment that has a beneficiary who was your ex spouse. Read in to see how divorce can affect each type of insurance.
Property and casualty insurance: If you move out during or after a divorce, and have created new residence, you must secure insurance on it. You can do this with a renter’s policy. Even if it is only a long term hotel stay, you must ensure all your property, and liabilites. You can extend excess liability policy to give yourself additional liabilites. An excess liability policy is a policy that is over and above a homeowner, rental, or auto coverage. No matter what the situation, making sure that the property is properly insured should be the first step. Then, you can go back and argue about who pays for what.
What if you and your spouse live in a house, but you move out and get a 6 month lease on a rental apartment? You are still married, and you are still on the deed of the insurance policy of you and your spouse’s house. Can that policy cover the new apartment? Some policies may give a limited amount of insurance to the second location. Now, let’s say you get divorced, and no longer have interest in the house. How do you deal with this? Take inventory of what the contents are. How much in clothing, furniture, jewelry, art, etc.? You may need to get appraisals.
Say you move out of the house, post-divorce, but you still own it together with your spouse. You decide to keep it until the youngest is out of high school. You still have equity economic interest. How do you address this? That policy would stay the way it is, as joint policy, with both ex-wife and ex-husband on the policy, since they both own it. But since one of them lives there, even though they can both be listed on the policy, they would want to have separate excess liability policies. The person who does not live in the house would want their own home liability policy for his/her new place of residents.
Sometimes, one spouse moves out of the house, but is the sole owner of it (the ex-spouse never owned it for whatever reason). The ex-spouse who still lives in the house needs a tenant’s policy (traditionally called renter's policy), and the owner should change it from homeowner policy to landowner property, because he/she does not live there anymore.
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