How Life Insurance is Handled in Divorce Mediation

Divorce makes people face a lot of uncomfortable conversations and make a lot of big life decisions.  Dividing finances is not as straightforward as dividing money in bank accounts or retirement accounts.  One thing couples often do not think about before they enter divorce mediation is life insurance – how does a life insurance policy get handled in divorce mediation?  Divorce mediation can assist you in amicably handling life insurance during divorce.

Life insurance protects loved ones and your estate in the event you pass away.  Typically, a life insurance policy would name the spouse or children as the beneficiary.  Getting a divorce does not automatically sever your former spouse’s right as a life insurance beneficiary if you have not formally changed the beneficiary with the life insurance company.  Policy Genius explains why determining life insurance in divorce isn’t always so cut and dry, “While it may seem callous or strange (or like a red flag to any future detective investigating a murder scene), it actually makes total financial sense and is a common part of many divorce proceedings. Life insurance is, primarily, a risk management tool. Let’s look at a real-life example. Mike is paying Cheryl $1,000 in child support for their eight-year-old son, Ricky. This adds up to $12,000 each year for the next ten years, for a total of $120,000 to be paid out by Mike. But there’s a chance that Mike may die before that ten years is up, leaving Ricky without some of the money for his health, education and other needs. In this situation, it makes sense for Cheryl to be the beneficiary of a life insurance policy taken out on Mike for about $120,000. This life insurance policy isn’t about making Cheryl and Ricky rich — it’s solely designed to cover what she is legally owed by the terms of her divorce. Life insurance doesn’t just have to cover child support — in fact, it should cover all of your ex’s financial obligations to you…If your spouse already has a life insurance policy, it may become part of the divorce settlement.

The best and most amicable way to handle life insurance in a divorce is to approach it as a means of guaranteeing payment of financial support to a spouse and any minor children that one spouse is already legally obligated to cover.  But, nothing is black and white, and no two cases are the same.  So, your best bet is to speak to an experienced divorce mediator to learn what your options are with life insurance during divorce.

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