This article is from Richard D. Soat, a San Antonio-based financial professional with BDO (a professional services firm providing assurance, tax, financial advisory and consulting services) and a board member of the Collaborative Law Institute of Texas. The opinions expressed on this site are Rick Soat’s own and do not necessarily represent the views of BDO USA, LLP.
The typical insurance profile of a married couple includes home insurance, life insurance, and auto insurance, and the main impetus for insurance is to make sure parents can support their children and keep them in a home, no matter what the circumstances. Of course, when a couple is divorced, the makeup of the family changes, incomes change, and if children are involved, child support typically enters into the equation.
However, that doesn’t mean that the need for insurance goes away – and depending on the size of the estate, newly-divorced individuals should do an inventory of their insurance needs and attend to the necessary changes.
The first steps in taking care of post-divorce insurance needs may already be initiated if the divorce is in process. If you move into a new residence while the divorce is in process, you should get home insurance or renter’s insurance, depending on if you’re buying or renting, in order to protect what you do have during the transition. Even if it’s just a temporary, transitional renting situation, renter’s insurance is a wise and typically low-cost investment.
Eventually, auto insurance will need to be split out – in many divorces, each partner has his or her own car, and retains the car and responsibility for it in the settlement. It’s not necessary to make a change on the policy while a couple is still legally married, so making changes here depends on the couple’s comfort level with having one shared bill during the divorce process.
Life insurance will continue to be a necessity for those divorcing, and the amount of life insurance required depends on the assets each person retains after the divorce. For clients who have a large estate – say, at least $5 million in value – I advise carrying enough life insurance to cover the taxes on the estate.
Child support could also affect the amount of life insurance one should carry after divorce. Familiarize yourself with what your support stream obligations will be according to your decree, as well as what assets you do have available in the event you do not have insurance coverage. If you’re able to negotiate how and when your ex-spouse will be paid should you die before your child support obligations expire – be it in a lump sum or installments – that will help prevent legal challenges regarding your estate. Otherwise, a claim could be made against the estate of the deceased for unpaid child support obligations, as the remaining unpaid balance becomes payable on the date of death.
Also, take the time to review the beneficiaries listed on your life insurance policy and adjust those as you see fit. You should, of course, also review your will at the same time, and make sure the language there coincides with what’s in your policy.
In divorce, the principle of providing for your loved ones doesn’t change even though your situation has changed. But it does take some thought, attention, and action on your part to make sure you’re protected in the way that best benefits you, your estate, and your children.