Post Divorce Insurance Planning

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 2^nd -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.

• Auto Insurance: Make sure the proper car's insured. Assess what autos you have, where they are covered, and what they are covered by (private, business, etc.). Separate the automobiles as quickly as possible, especially in a messy divorce; you want to remove yourself from the liability exposure that your other ex can drag you in to. Make sure ownership is correct, and correct autos named under umbrella insurance policies.

• Liability, excess liability, umbrella coverage: Often, insurance is put together by a number of different people, and has never been properly reviewed. Liability limits must be reviewed to make sure they are sufficient for the excess liability coverage. One situation to consider is if you were married to a high profile person, and are now divorced, you may feel like you have a lesser need for coverage. When going through a divorce, reevaluate what coverage level you need. If you are looking to save money, don’t do it by not having umbrella coverage — do it by evaluating underlying coverage and decreasing deductibles.

• Life Insurance: What type of insurance coverage does your ex-spouse have? Do you want additional life insurance on your ex-spouse when there is alimony or child support? Many divorce settlements mandate an insurance policy, but they usually do not have details about you, as the beneficiary spouse, being entitled to get reports from the insurance company that the premiums are paid or a type of coverage that ensures that it is feasible to be maintained for a necessary amount of time. See what you can do about this. This is especially important when your spouse must pay alimony or child support, because you want to make sure you will continue to get this money, even in the event of death.

• Disability Insurance: This is one of most neglected types of insurance, but it is even more crucial post divorce. Before the divorce, if either spouse was disabled you would probably still have enough to live on. Now, however, all your assets have been split in half.

• Long term care insurance: This will pay a benefit in the case that you cannot do certain daily activities, such as bathing, dressing, eating, etc. on your own. It provides daily benefits to pay for someone to assist you with these activities. Regular health insurance does not cover this. When you were married you may have had a shared-care policy. There are two types of shared-care policies: One policy that two people can access, or two separate policies that are linked together. The two separate policies option can easily be separated in case of divorce. The one shared policy is harder to separate, but it can be done in most cases.