Divorce & Life Insurance
Life insurance often gets overlooked in divorce, but failing to address it can create serious problems. Beneficiary designations that aren’t updated properly could send payouts to an ex-spouse—or worse, leave children without the support you intended. At the same time, courts may require policies to remain in place to secure spousal or child support obligations. Reviewing your life insurance during divorce is essential to avoid costly mistakes and ensure your wishes are carried out.
Divorce & Life Insurance
Life insurance often gets overlooked in divorce, but failing to address it can create serious problems. Beneficiary designations that aren’t updated properly could send payouts to an ex-spouse—or worse, leave children without the support you intended. At the same time, courts may require policies to remain in place to secure spousal or child support obligations. Reviewing your life insurance during divorce is essential to avoid costly mistakes and ensure your wishes are carried out.
Don’t let an outdated life insurance policy undo your intentions.
Life insurance is often a top concern after a positive life event such as marriage or the birth of a child. A focus on the happy possibilities of the future can also highlight what could go wrong and the importance of trying to provide financial stability for a spouse and children left behind should the worst happen. However, those same life insurance policies may be a little-regarded afterthought in the case of divorce and life insurance beneficiaries, when the parties are busy negotiating matters of property division, spousal support, and child support.
Divorce, like any other major life change, should prompt a close review of any life insurance policies, with the assistance and advice of an experienced family law attorney. Certain common mistakes with beneficiary designations could result in a life insurance payout going to a party you did not intend or tied up in probate proceedings instead of benefiting your minor children. At the same time, simply removing your ex-spouse from your life insurance is often not advisable during divorce proceedings, as spousal and child support obligations, as well as the type of insurance, can influence the court’s decision on who gets the life insurance in a divorce settlement. Understanding how the law works can help provide guidance on when and how to change beneficiaries and prevent avoidable errors.
California Divorce, Life Insurance Laws, and Beneficiaries
Life insurance policies with named beneficiaries pay directly to those individuals on the policyholder’s death, without the proceeds having to go through the probate process. While this is considered an advantage for estate planning purposes, it can be a serious problem if the beneficiary designation is outdated, especially in situations involving divorce and life insurance beneficiaries. In California, a beneficiary designation can override conflicting instructions provided in a will or trust, meaning that it is entirely possible for the death benefit to be paid to someone the decedent no longer intended to have it go to. While the probate code automatically revokes beneficiary status for an ex-spouse on some types of non-probate assets upon divorce, notably life insurance is not included on this list in California. The policy owner must affirmatively change the beneficiary with their insurance company to update it.
It is also important to note that in California, if a minor is designated as the beneficiary of a life insurance policy, they will be unable to access that money directly until they are age 18. Therefore, it is not a good idea for someone who wants a policy to benefit their family without going to their ex-spouse to simply substitute the child’s name instead. Alternatives include naming a custodian to claim the death benefit on the child’s behalf or having the payout go into a trust set up for the child’s benefit; if this type of arrangement is not made, the probate court will have to appoint a custodian to manage the funds, which adds delay and expense to the process.
When Can I Change Beneficiaries for My Policy in Divorce?
Those who are aware of the need to update beneficiaries on their life insurance policy after divorce may be tempted to do so as soon as the paperwork is filed to begin divorce proceedings. Neither party should unilaterally make any changes to their existing policies, though, as this is prohibited by the automatic temporary restraining orders that are included in a divorce summons. Specifically, California Family Code § 2040 (3) notes this order “restrain[s] both parties from cashing, borrowing against, canceling, transferring, disposing of, or changing the beneficiaries of insurance or other coverage, including life, health, automobile, and disability, held for the benefit of the parties and their child or children for whom support may be ordered.”
Therefore, it is best to wait until you have a court order that clarifies what changes are permitted, or a final divorce judgment that determines who the owner of the policy is and who should be the beneficiary, before doing anything. Consult your family law attorney on questions specific to your circumstances, as they will be best positioned to provide accurate guidance.
Court-Ordered Life Insurance in Divorce
In situations where an insured party has alimony or child support obligations, the court may require them to maintain life insurance to safeguard against an abrupt end to support that could leave the supported party or parties destitute. California Family Code § 4360 allows the court to make such an order for spousal support, and Family Code § 4012 similarly permits the court to require “reasonable security” for the payment of child support. This is more likely if there is a significant disparity of income between the higher-earning and lower-earning spouse. Any such requirement would be included in the divorce decree, which should also detail who owns the policy, who is the beneficiary, and who is responsible for paying premiums. The decree may also require the supported spouse to be named as an irrevocable beneficiary—meaning that they cannot be removed or have their benefit allocation changed without their consent.
If life insurance is ordered by the court, you may need to keep the existing beneficiary designation on your existing policy, increase the level of your coverage, or obtain a new policy to meet the obligation. If your current level of coverage exceeds the requirement, you can assign a percentage of the death benefit to the court-ordered beneficiary and the rest to an alternate beneficiary of your choice. Your legal team can help determine the correct strategy to satisfy the court’s requirements.
Other Considerations for Life Insurance in California
Another key point to consider is that permanent life insurance (whole life or universal life) has a cash value that may be considered marital property if it was purchased during the marriage or had premiums paid with community assets. Term life insurance, on the other hand, has no separate cash value during the insured’s lifetime and is generally not considered an asset. Though both types of insurance policy should be addressed in a divorce settlement, the value of a permanent life insurance policy should be fairly allocated in the property division agreement in addition to any questions of beneficiary designation.
Experienced Family Law Representation in Silicon Valley
Life insurance may be only one small piece of a complex financial puzzle to be solved in divorce, but it can play an important role in providing financial security for you and those you love. The expert family law attorneys at Hoover Krepelka are here to help ensure that no detail is overlooked and your interests are protected as you move forward. To schedule your consultation, fill out the form below today.
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FAQS
Can my ex-spouse still get my life insurance after divorce?
Yes, in California, life insurance beneficiary designations are not automatically revoked after divorce. Unless you change the beneficiary through your insurance company, your ex-spouse could still receive the payout.
How do I change my life insurance beneficiary after a divorce?
You’ll need to wait until your divorce is finalized or you have a court order allowing changes, then submit a beneficiary change request to your insurance company.
What happens if I forget to update my life insurance beneficiary after divorce?
If you don’t update it, your ex-spouse may still receive the payout, even if that’s not your intention. California law does not automatically remove ex-spouses from life insurance policies.