Among the many shared assets and liabilities that need to be sorted out during a divorce, insurance policies can be among the most confusing. Policies often have complex language and hidden terms, and the divorcing parties may try to use insurance benefits as a bargaining chip in the overall proceedings.
Even for divorcing couples who are splitting amicably and want to remain on the same plan for a period of time, it's important to read the fine print of the insurance agreement. In many cases, separated spouses or couples who have already filed a divorce petition are not eligible to remain on the plan as a married couple. If they do and the insurance company discovers it, they could be dropped because of insurance fraud, which could have long lasting effects on other policies.
Instead, divorcing couples should explore COBRA options, which may be more expensive but eliminate the risk of being accused of fraud and dropped from the policy.
Life insurance plans can also be tricky, since the owner of the policy can make all the decisions without consulting any of the beneficiaries. This can be a major issue if a life insurance policy is put in place to replace lost wages or missing child support in the event of an unexpected death. If the insured person decides to change the beneficiary from their ex-spouse or children to a third party, then the income that the ex-spouse was relying on from the insurance policy would no longer be there, and they might not know about it until after the fact.
All of these issues highlight how important it is to have a thorough, well written divorce agreement that provides for a wide variety of situations. The best time to provide for an unexpected event is to plan for it in advance, and a comprehensive divorce agreement is an important piece of that.
More information about divorce settlements for Minnesota couples can be found on our family law website.
Source: Reuters, "How to untangle your insurance plans in a divorce," Geoff Williams, Sept. 11, 2012.