Does a Divorce Decree Nullify a Life Insurance Policy?
As the percentage of marriages ending in divorce has risen over the past years, so have issues with how to divide marital assets. One of the trickier assets to divide is life insurance. While a divorce decree won't nullify a life insurance policy, it may require the policyholder to change the policy beneficiaries. And whether this is needed is determined by divorce lawyers and state law.
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Making Changes
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State law governs divorces and some states like Texas automatically cancel the spouse as an insurance beneficiary, unless the divorce decree states otherwise. In this case, the contingent beneficiary will become the primary beneficiary unless the policyholder designates someone else. Other states will require the policyholder to drop the ex-spouse as a beneficiary. Again, this will only be allowed if the divorce decree doesn't require the policyholder to maintain the ex-spouse as the beneficiary.
Why an Ex-Spouse Would Stay Beneficiary
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On the surface it seems simple. If you're divorced, your new spouse should be your beneficiary, not your ex-spouse. This might be the case if you and your spouse didn't have children. If children are involved, then life insurance serves as a back-up to child support. If you should die, your children would still need your financial support. Life insurance would secure your ex-spouse's ability to continue caring for your children. Life insurance can also be used to secure spousal support in case of your death.
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Future Changes
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That your spouse must remain as beneficiary at the time of your divorce doesn't mean that it must remain that way. If your spouse remarries or your children become adults, then the financial situation has changed and you should be able to make changes to whom you designate as beneficiaries of your life insurance.
Problems
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The problem with using life insurance to secure support is that continued payment of the premiums can't be guaranteed. A failure to pay to the premium would mean the policy would be canceled. The divorce decree should stipulate that premiums continue to be paid. This gives the spouse legal recourse if the policyholder fails to pay. Otherwise, if the policy has a cash value like whole life, it can be structured so that premiums would be paid out of the cash value if the policy owner doesn't pay.
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