Financial Planning for Remarriage
Life Insurance Needs After Divorce & Remarriage
Written exclusively for IDoTakeTwo.com by David Rossett, a Financial Representative with the Northwestern Mutual Financial Network based in New York City for The Northwestern Mutual Life Insurance Company, Milwaukee, Wisconsin.
Life insurance, more than most of the goods and services you buy, is tied to the circumstances of your life. You buy life insurance, initially, to protect your family from financial loss stemming from your death. You tie the amount of your life insurance to the money your family will need to pay off debts, provide an income, put children through college and cover other financial commitments.
Life insurance should be reviewed periodically to make sure that it still is meeting your needs, that amounts of coverage are up to date, and that beneficiaries are correctly designated. Life insurance definitely should be reviewed in connection with any major life event. Divorce or remarriage are prime examples.
PRE & POST DIVORCE CONSIDERATIONS FOR FINANCIAL PLANNING
Do not assume that your insurance agent or company knows about your changed circumstances. If your spouse was your beneficiary and the designation is not changed, your former spouse may receive the proceeds upon your death. If a beneficiary designation simply reads “wife of the insured” or “husband of the insured” and there is no spouse, the secondary beneficiary will receive the proceeds. In some states a divorce automatically changes your beneficiary designations (and your appointments of trustees, UTMA custodians, etc.), whether you want them changed or not. Even if you do want the designations changed, the automatic changes may not be the ones you would select.
Life insurance may be required as part of a property settlement agreement or to guarantee the continuation of spousal or child support payments. This may involve the transfer of ownership of an existing policy, the purchase of a new policy by you or by your ex-spouse on your life, or beneficiary designations on new or existing policies owned by you.
If the premium payments are to be classed as alimony for federal income tax purposes, it is important that you consult with your attorney to be sure that both the policy ownership arrangements and the insurance provisions of the property settlement agreement meet the requirements of the Internal Revenue Code.
If you live in a Community Property Law or Marital Property Law state, it is extremely important that the ownership of your life insurance be specifically covered by the terms of your divorce decree or property settlement agreement. In those states the law may actually grant an ex-spouse more rights in a policy than they had during the marriage if the decree or settlement agreement does not specifically dispose of the policies.
If you are contemplating divorce or getting married again, you may have many options to consider with respect to your life insurance coverage. Talk to your agent without delay.
Top 10 Financial Tips to Consider Before Remarriage
1. Discuss finances beforehand. The first date is too soon and the honeymoon is too late.
SOCIAL SECURITY and REMARRIAGE
More Information on Remarriage and Social Security