Beth McRae Mayfield
June 06, 2019
Divorce can be a complex and lengthy process with a variety of emotional, practical, and financial implications for both spouses, and any children that may be impacted. During such a stressful time, it can be easy to overlook basic items like the family’s insurance coverage. Nevertheless, it’s important to review all insurance policies to determine how your coverage may change once the divorce is final and, more importantly, how you can prepare.
The two primary types of insurance that typically come into play during a divorce are health insurance and life insurance.
It’s common for one spouse to be covered under the other, often higher-earning, spouse’s employer-sponsored health plan. The Consolidated Omnibus Budget Reconciliation Act (COBRA) was passed in 1986 to help non-income-earning spouses after divorce, allowing them to continue their coverage under their ex-spouse’s employer plan for up to three years.
While COBRA can be a convenient bridge in coverage, it’s typically not the most cost-effective solution for the spouse paying the premiums, which are typically the employer and the employee’s share of the premium, plus up to 2% additional for administrative costs. Additionally, the three-year limit makes it a short-term solution at best. With the passage of the Affordable Care Act in 2010, more affordable health insurance options may now be available for people who don’t have access to their own employer-sponsored health plan, even if they have pre-existing conditions. These options are worth exploring before signing up for COBRA.
Life insurance can be an important consideration in divorce, especially for anyone expecting to receive spousal support. Spousal support typically stops when the payor is deceased. However, unless the recipient of spousal support inherits other assets to replace the spousal support payments, the stream of payments can be sustained by a life insurance policy on the payor.
Sometimes life insurance is required as part of a divorce settlement. When this is the case, it’s typically best for the recipient spouse to own the policy and make the required premium payments. This way, the recipient spouse retains control over the policy, ensuring that no changes are made or lapses in payment occur without his or her knowledge.
Finally, any life insurance needed should always be put in place before the divorce is final. If the payor spouse turns out to be uninsurable, appropriate modifications to the divorce agreement can still be made. In some states where one spouse has a term-life insurance policy and becomes uninsurable, the existing policy may be considered a marital asset.
Like any issue that comes up during divorce, determining how to handle changes in insurance policies and coverage may not always be as straightforward as they seem. It’s important to be aware of all existing policies going into the divorce, as well as any new policies you may need as a result of the settlement. Since insurance can be a complicated topic with a variety of options, it may be helpful to seek the help of a licensed insurance professional or financial advisor to determine the best solutions.
This blog post originally appeared on Forbes.com.
To learn more, please contact visit our Wealth Strategies resource page as we prepare to launch our white paper booklet on this topic.
Beth Mayfield is a senior wealth strategist for CIBC Private Wealth Management in Atlanta, with more than 20 years of industry experience. In this role, she works closely with clients and their advisors to develop and implement charitable, estate and wealth transfer planning as part of CIBC Private Wealth Management’s integrated wealth management process.
* Required fields
Internal Custody:If your assets are custodied with Atlantic Trust, please select the internal custody version of Atlantic Trust Portfolio Online to view your portfolio information.
External Custody:If your assets are custodied with an external custodian, such as Schwab, Fidelity or The Bank of New York, you may access the external version of Atlantic Trust Portfolio Online.
Sponsored Funds Investors:If you are an investor in any of the Atlantic Trust Sponsored Funds, you may access the Atlantic Trust Investor Dashboard here.
Safari Browser Users:To access login links, you will need to deselect the "Block pop-up windows" option under your security preferences.
For further assistance, please contact your Atlantic Trust client service team.