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What you should know about life insurance when filing for divorce

Emotions run high when couples are considering a divorce. Negotiating through the divorce process can be incredibly complex, involving many factors that often leave people feeling overwhelmed.

Not surprisingly, the financial consequences associated with life insurance policies are likely not the first thing on most people's minds during this trying period. Nonetheless, determining how to proceed with life insurance policies before and after a divorce is critical and can often have serious effects.

Spouses can be removed as beneficiaries on life insurance policies before the divorce process has started and after the divorce has been confirmed. While a couple is in the midst of the divorce process, though, many states prohibit either party from disposing of or changing assets.

Under Minnesota law, once the divorce proceedings have commenced, neither spouse is allowed to dispose of any assets, except:

  • For the necessities of life or for the necessary generation of income or preservation of assets
  • When there is a written agreement between the parties
  • For retaining counsel to carry on or to contest the proceeding

Minnesota law also specifically requires parties to maintain "all currently available insurance coverage," and prohibits changes to the coverage itself or to the beneficiary designation.

In cases where one spouse is the higher wage earner but does not have a life insurance policy, it may be advisable to purchase a life insurance policy on him or her. Typically, divorce settlement payments, such as alimony and child support, terminate when the paying spouse dies. A life insurance policy on that spouse will allow the receiving spouse to recover a lump-sum payment of the amount he or she would have been paid under the terms of the divorce settlement. Such action must be taken before the divorce is finalized, however.

Source: Forbes, "Three of the Most Frequently Asked Questions about Health Insurance, Life Insurance and Social Security After Divorce," Jeff Landers, June 5, 2012.

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