Getting divorced is often a confusing time, when strong feelings cloud the pragmatic financial issues that both sides must resolve. When there are children involved, custodial arrangements and child support can make it even more emotionally fraught.
Beyond the home, the car and other property and debt that will be divided either as part of a contested divorce or a settlement agreement, it is important not to forget the effect that divorce will have on insurance policies and coverages. Taking health, car, or property insurance into account, as well as beneficiary designations during the formation of the settlement agreement, will prevent the need to rehash negotiations post-divorce.
How divorce impacts insurance
During a divorce proceeding, insurance policies are viewed as marital assets. As Maryland is an equitable division state, the court will include these assets, under whose name the policies are as well as who are the designated beneficiaries during the equitable distribution of marital assets. During settlement negotiations, both sides will have to discuss who will have the responsibility of maintaining property, car, health care premiums.
It is possible for spouses to maintain coverage with existing policies under some federal laws regulating health insurance. For couples who have long-term care policies or policies that are part of a retirement portfolio, it is crucial that both sides discuss both the equitable division of these assets as well as their continuation.
Other types of insurance, such as life and disability policies, have accrued cash values. Seeking the cash surrender value of such policies as part of property division usually means termination of the coverage.
As life insurance policies become more expensive with the age and health of the policyholder, the prospect of having to buy a new one may not be an acceptable solution for either spouse. An alternative to this is to either lower the coverage on the policy or require payment by one spouse of its cash value as part of the agreement.
Updating beneficiary designations
When planning for divorce, it is important for both spouses to purchase additional coverage, add policies or update and transfer beneficiary designations or ownership policies. If beneficiary designations are not changed and the insured dies, this can bring on an interpleader lawsuit, in which it is the court that will decide who will receive the funds.
If you are preparing to go through divorce in Maryland and the District of Columbia, it will help to have an experienced divorce attorney who will protect your interests and your assets.