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.
2. What is your credit history? How much debt are you bringing into the relationship? Do you pay your credit card bills on time? Ask questions so there are no surprises when the two of you make big purchases like an automobile or a home. Consider using a credit protection service like LifeLock so there are no surprises.
3. What is your financial personality? Are you a saver or a spender? Do you live from paycheck to paycheck? Are you a penny pincher who cuts coupons? Have an honest discussion with each other about your habits because it will affect your relationship in the long run.
4. Create a savings plan. Discuss short- and long-term saving options, investments, trading systems, retirement, IRAs and 401(k) plans.
5. Communicate and negotiate everyday money matters. Should you open a joint checking account? Who will buy groceries? Who will keep track of monthly statements and bills?
6. Focus on goals, dreams and objectives. Are you saving for a home? What savings plan will you have for your children?
7. Update insurance and estate plans. Make sure you’re sufficiently insured and the beneficiary for each policy is updated. You may also need to update other estate documents.
8. Examine your tax situation. Tax laws penalize dual-income families; determine what will benefit you and your partner in advance.
9. Consider a prenuptial agreement. A prenup isn’t just for the rich; it can cover a variety of things like property, a home, inheritance and other investments.
10. Talk with a certified financial advisor. Financial planners can help you establish a plan that will help you reach your objectives.
Social Security and Remarriage
- Your age at the time of your remarriage may affect your Social Security benefits.
- If you remarry before the age of 60, you are generally not eligible for benefits based upon your former spouse’s record unless your remarriage ends.
- If you remarry after age 60, or you are a disabled widow or a disabled surviving former spouse who marries after age 50, you are eligible to receive the higher of the benefits of your former or your current spouse.
- If the benefit you have received as a worker is higher than the spousal benefit, you will receive the benefit based on your own work record.
- If your new husband (of any age) is receiving Social Security benefits, you can receive benefits based on his wage record if it is larger than your widow’s benefit, if:
- You have been married for one year (this rule can be waived under certain conditions), or
- You are caring for his child who is under age 16 and entitled to the benefits.
More Information on Remarriage and Social Security
- 1-800-772-1213 7:00 a.m. to 7:00 p.m. (any time zone)