When you are going through the divorce mediation process, life insurance policies may not rank high on your priority list, but they are an important part of marital assets division. According to experienced divorce mediators, life insurance is likely to come up during the property division negotiations, particularly when kids are involved in a divorce. The mediator may request both sides to take an inventory of all their existing life insurance policies to enable a smooth negotiation.
Handling Life Insurance Coverage Requirements through Mediation
Your divorce mediator may suggest you to consider your present future life insurance coverage needs and balance them against your financial position to afford maintaining the policies. For instance, if you and your soon-to-be-ex each have term life insurance coverage and you both choose to keep your policies. In this case, the mediator may encourage you both to be the owner as well as the beneficiary for the other person’s insurance policy.
In case you own a cash value policy, the mediator may recommend that you both terminate the policy so that the cash value can be divided equally between the two. With that said, surrender charges should be considered in this decision to determine how far the policy’s surrender value will be reduced.
Both parties can work with help from the mediator to decide who will own the policy, what should be the policy amount, who should be named as beneficiaries, what amount of coverage should go to each beneficiary, and who should pay the policy premiums.
Life Insurance Coverage to Secure Child Support and Alimony
When alimony or child support payments are a part of the divorce, the mediation expert may suggest that the payor spouse should keep the life insurance coverage in place. If there is no current policy, the divorce mediator may encourage the payor spouse to buy a life insurance policy.
This will ensure in the event of their death, financial support will still be available to the child. In a few cases, the payor might not be in a position to afford to buy life insurance or may not qualify for it. In this situation, the divorce mediator may suggest that a constructive trust may be set up, which secures a part of the payor’s assets to protect against the risk of the payor’s untimely death.
Protecting Your Financial Interest Post-Divorce through Insurance
In many cases, the spouse who is going to pay alimony or child support may be the owner of the life insurance policy, while the other spouse is the beneficiary. But a legitimate concern may manifest itself during divorce mediation proceedings about what would happen if the policy owner changed the beneficiary at some point without informing the other ex-spouse.
Another possible risk may be that the policy owner may knowingly allow the insurance policy to lapse by stopping the premium payments. This could compromise the other ex-spouse’s financial security. In these situations, the divorce mediator may suggest that the ownership of the insurance policy should remain with the spouse receive child support or alimony.
Another possibility that divorce mediators may suggest is to include a third party authorization for making policy changes, so that the other ex-spouse can be alerted if a change of beneficiary is attempted or the policy is about to lapse.
Expert Services for Divorce Mediation
At Advanced Mediation Solutions, we are committed to providing the right guidance and support to divorcing spouses regarding intricate matters such as life insurance coverage. To learn more about our mediation services, call us today at 856-669-7172 or contact us online and schedule a free consultation.