Getting Divorced 

‹ Back

What Happens to Life Insurance Policies After Divorce?

Introduction

When couples go through a divorce, the process can often be complicated and emotional, especially when it comes to dividing assets and responsibilities. One area that frequently gets overlooked is life insurance policies. Many people are unaware of how their life insurance will be affected after divorce, and how they need to update their policies to reflect their new circumstances.

In this article, we’ll explore what happens to life insurance policies after a divorce, how to update beneficiaries, and why it’s important to review your coverage during this significant life change.

Understanding Life Insurance and Divorce

Life insurance is often a key part of financial planning for married couples. It can provide financial support to a surviving spouse or children in the event of one party’s death. However, after a divorce, the terms and beneficiaries of a life insurance policy may need to be reviewed and adjusted.

Generally, life insurance policies are considered personal assets, which means they aren’t automatically included in the division of property during a divorce. However, the beneficiary designations of life insurance policies may be subject to change, and the court may even address these matters as part of the divorce settlement, especially if there are children or spousal maintenance involved.

What Happens to the Beneficiary Designations?

The most common issue surrounding life insurance during a divorce is the beneficiary designation. The beneficiary is the person who will receive the death benefit if the policyholder passes away. In many cases, life insurance policies name a spouse as the beneficiary, but this may no longer be appropriate once the couple divorces.

Here’s what you need to know:

1. The Impact of Divorce on Beneficiaries

• Automatic Changes: In some jurisdictions, divorce may automatically revoke a spouse’s designation as the beneficiary of a life insurance policy. This means that after divorce, the former spouse would no longer be entitled to the death benefit. However, this doesn’t always apply in South Africa, so it’s essential to update the beneficiary designation manually.
• Updating the Beneficiary: It’s crucial to review and update the beneficiary designation as soon as possible after the divorce is finalised. If you want your ex-spouse to remain as the beneficiary, you can keep them listed, but it’s always a good idea to ensure that the policy reflects your current wishes.

2. What Happens if the Beneficiary Is Not Updated?

If you do not update your life insurance policy after a divorce and your ex-spouse remains the beneficiary, the policy will still pay the death benefit to them upon your death. This can create complications, especially if you no longer wish to provide for your former spouse.

For example, if you have remarried or have children with another partner, it may be important to update the beneficiary designation to reflect your new family circumstances. Otherwise, the proceeds from the policy may go to an ex-spouse instead of your children or current partner, leading to unnecessary legal disputes.

What About the Ownership of the Policy?

In addition to the beneficiary, another important consideration is the ownership of the life insurance policy itself.

• Policy Ownership During Divorce: The policyholder (the person who owns the policy) has the right to choose who is listed as the beneficiary. If the life insurance policy was acquired during the marriage, the court may address whether the policy is considered a marital asset, and may even require that the beneficiary be changed as part of the divorce settlement.
• Transferring Ownership: If the policy is considered part of the marital estate, one spouse may agree to transfer ownership of the policy to the other as part of the divorce settlement. This could happen if one spouse has been paying the premiums on the policy, or if the policy is part of the division of assets.

What Happens If You Have Children?

For couples with children, life insurance can be an essential part of ensuring their financial security after a divorce. The court may address the life insurance policy in the divorce agreement, particularly in situations where one spouse is required to maintain the policy for the benefit of the children or the other spouse.

Here are some considerations:

• Child Maintenance: If there is a maintenance agreement in place that requires one parent to provide financial support for the children, the court may include a provision that requires the paying parent to maintain life insurance to ensure that the children are supported in the event of their parent’s death.
• Guardianship of Children: In some cases, the parent with custody of the children may request that life insurance be updated to reflect their guardianship. The policyholder may be required to designate the custodial parent as the beneficiary or designate a trust for the benefit of the children.

What If the Life Insurance Policy Is Part of the Divorce Settlement?

Sometimes, life insurance policies are incorporated into a divorce settlement to ensure continued financial support, especially when spousal or child maintenance is involved.

Here are two common scenarios:

1. Life Insurance as Part of Spousal Support

In cases where spousal support (maintenance) is awarded, the paying spouse may be required to maintain a life insurance policy to protect the receiving spouse in the event of their death. This ensures that the recipient of the spousal maintenance continues to receive financial support if something happens to the paying spouse.

2. Life Insurance for Children’s Support

If the couple has children, the court may require one spouse to maintain life insurance to ensure that child maintenance continues after the paying spouse’s death. The children’s well-being is the primary focus, and the life insurance policy can help guarantee ongoing support.

How to Update Your Life Insurance After Divorce

To avoid any confusion or legal issues, it is important to take the following steps to update your life insurance after a divorce:

1. Contact the Insurance Company: Notify your life insurance company of your change in circumstances and request to update the beneficiary designation.
2. Update the Beneficiary: Carefully review the beneficiary designation and update it to reflect your current wishes. If you have children or a new spouse, you may want to list them as beneficiaries instead of your ex-spouse.
3. Review Policy Ownership: Ensure that the policy ownership is correctly listed and that you have control over the policy, especially if the policy was part of the marital estate.
4. Review Your Coverage: Divorce often changes your financial situation, so review the amount of life insurance coverage you need to ensure that your children or new partner are financially protected.
5. Consult with a Financial Advisor: If you’re unsure about how your life insurance policy should be handled after divorce, it’s a good idea to speak with a financial advisor or divorce attorney to ensure your interests are properly safeguarded.

Conclusion

After a divorce, life insurance policies should not be overlooked. It’s essential to update the beneficiary designations, review the ownership of the policy, and ensure that the policy is consistent with your new financial and familial situation. Divorce is a significant life change, and addressing these details will help prevent future complications and ensure that your loved ones are protected.

At 123Divorce.co.za, we can help guide you through the legal aspects of divorce, including ensuring that your life insurance policies and other financial matters are appropriately handled. If you need assistance with updating your life insurance or navigating other aspects of your divorce, don’t hesitate to reach out to us.