Divorce, finances and life insurance

Going through a divorce can be a tough transition even for the most amicable of splits. Along with high emotions, there’s a high amount of paperwork to sort through, especially where financial information is concerned.

There are numerous financial and legal decisions you’ll have to make. If you’re going through a divorce, here are some tips to help make the financial transition as smooth as possible. 

Get in the right headspace

Divorce can bubble up a lot of emotion, but there also needs to be some pragmatism where finances are concerned. To get in the right headspace: 

1. Rely on realistic communication: Keep your expectations in line when it comes to what information or outcomes you hope to get and how you receive it, especially if communication has been an issue in the relationship. A mediator can help. 
2. Understand your accounts: Knowing where your money is always important, but it's’ especially true on the precipice of divorce. Review your financial documents and accounts, both individual and shared, so you have a full financial picture of the relationship. That means 401(K) accounts, 529 plans, savings accounts, and more. Share them with your advisors or attorney. 
3. Outsource where needed: Delegate as much as you can to professionals such as advisors, attorneys, or other trusted partners to help alleviate some of the burden, where possible, of the paperwork. 

Next, uncouple your assets 

Once you have your full financial picture and the right advisors in place, dive into the tactical responsibilities. Uncouple your accounts, such as any joint checking, savings, retirement, or credit card accounts. Seek counseling if necessary on how to divide and conquer any joint assets. While it may be tempting to hide money, especially if your partner is untrustworthy, it’s highly advisable not to do so, as it can escalate arguments.

Don’t forget life insurance 

Changes in life insurance affect the entire family. Here are things to consider. 

Reevaluate your policies

Reevaluate your policies, especially if an ex will be making support payments, such as child support or alimony. If the insured passes away, those financial responsibilities must be taken care of. Get individual policies—yes, single parents and stay-at-home parents need life insurance, too—to secure your family’s financial future on both sides. Your new financial world order might mean changing any existing individual policies to get more coverage, depending on your financial state. Don’t forget about other insurance policies that have historically been shared as well, like health insurance and auto insurance.

Update your beneficiaries 

If your spouse was previously your beneficiary, you may want to update your beneficiary. Many life insurance policies allow for revocable beneficiaries, meaning you can change your beneficiaries whenever you wish. Parents, siblings, and children usually fall into this category – you can check with your life insurance provider to be sure. You may also want to check things like wills, advanced health care directives, retirement accounts, savings accounts, or any other accounts that would pay out a beneficiary upon death. 

There is the possibility that you might be required to keep a spouse on your policy, so check your divorce decree, which will also offer information such as who should be paying for the premiums on the policies. 

Consider taking out a policy on your ex-spouse

Will you be receiving alimony or child support payments? It’s important to make sure the income expected from those payments is insured as well. Judges may sometimes mandate in a divorce decree that the non-primary parent carry life insurance coverage. If you lose this income source, it could adversely impact your ability to maintain your current lifestyle.

In some cases, if certain conditions are met (such as being able to show that you have an “insurable interest”), you could take out a basic life insurance policy on your ex-spouse and pay the premiums directly. By doing this, you will not have to worry about the policy lapsing if they forget to pay. 

Is the spouse providing financial support uninsurable? Changes to the divorce decree can often be made to make sure you are not left financially exposed so it’s wise to consider this before you finalize your divorce decree.

Hopefully, you and your soon-to-be ex-partner can keep things civil and work towards the common goal of moving forward with your lives.