TO LISTEN TO EPISODE 17, CLICK HERE.
Hi, everyone, and thank you so much for tuning in to The Divorce Field Guide. My name is Ani Mason and I’m a divorce lawyer and mediator and I’m also the creator of this podcast.
Today, we are in Episode 17 and we are going to be talking about insurance and estate planning.
HEALTH INSURANCE IN DIVORCE
Let me start off with health insurance. And I am speaking here about health insurance for adults, not necessarily health insurance for kids.
Health insurance for kids is definitely addressed as part of your divorce, and it is typically addressed more in the arena of child support. Here, I’m just talking about health insurance for you and health insurance for your spouse.
I want to take you through, basically, what are the different topics related to your health insurance that we typically address in a divorce.
We start off by clarifying who carries the insurance in the family. Do you each carry your own insurance? Is one of you on the other person’s plan?
That is important to know because your divorce will impact your ability to either keep your spouse on your plan or to stay on your spouse’s plan. If you are both insured by one person’s employer, we anticipate as part of the divorce process that, at some time, that will have to change.
In particular, by the time your legal divorce is finalized – and this is different in different geographies, and it’s different with different employers, so you really need to clarify with your or spouse’s employer how they handle covering a spouse who is still married but legally separated from the employee’s spouse, and how they handle covering an ex-spouse once they are legally divorced. So, clarify that for your particular situation.
But at some point, you will very likely not be able to keep your spouse on your plan or stay on your spouse’s plan, if you are, in fact, together on one person’s plan through their employer.
In light of that, we like to clarify in your divorce agreement how each of you is going to be insured during the period of time from when you sign your divorce contract until the period of time when you are legally divorced.
That may be a matter of months. It may be a matter of years. And you and your spouse need to figure that out together.
For many people who maybe have a particular health condition or for whatever reason, maybe finances are very tight, and they just don’t have the money to pay for a separate insurance plan, they may agree to be legally separated and remain legally separated for a designated period of time, indefinitely, for a number of years, in order to keep one spouse on another spouse’s employee-based healthcare plan in an affordable way.
That may or may not be your situation, but you do want to clarify how each of you will be covered from the date you sign your agreement and are legally separated all the way up until the judgment of divorce is issued and finalized.
Separately, you want to be clear about if, for instance, your spouse is on your employer-based health plan, is there an additional cost to you for carrying your spouse and who’s responsible for that? So, the cost of providing insurance. Is each spouse responsible for their own costs? Is one spouse paying both people’s costs for insurance?
And then finally, if there are medical expenses that are not covered by insurance, that are not reimbursed by insurance, how are you each paying for those during this period of legal separation until the time that you have a legal divorce?
And actually, if you have medical expenses that you, say, pay for out-of-pocket, but then that insurance does send you a check reimbursing you for, how are those reimbursements being handled?
So you want to cover all of that. What plans is each person going to be covered on? How are we covering the cost of the insurance plan or the premium? How are we covering, each of us, any medical expenses that aren’t covered by insurance? And also, what are we doing with reimbursements that we do get from insurance for this period of time when we have, when we’re legally separated but not yet legally divorced?
And then you want to clarify from the date of your legal divorce going forward, what will happen.
Planning For COBRA Coverage
Likely, if you are on your spouse’s health insurance plan or vice versa, they are on yours, after your legal divorce, they or you will be entitled to a period of time on COBRA, which means you get to continue with the exact same insurance provider and the same type of plan, but your plan is broken off, or your spouse’s is broken off, independently, and you pay for it at full freight. So, there is no employer subsidy of the cost.
For instance, your spouse, if you are on your spouse’s plan, your spouse may be paying $250/month toward their health insurance premium through their employer, and the employer is covering the rest. Well, maybe it’s a really terrific plan, and it’s actually, for a single individual without an employer subsidy, it’s $1,100 a month. I don’t know, and that’s detail that you would have to get individually from your or your spouse’s employer and from the plan, to understand what are the costs if someone goes on to COBRA, what is the cost for a single individual, and then weighing that against the different other health insurance options that you may have available to you in your state.
LIFE INSURANCE IN DIVORCE
With regard to life insurance, let me talk a little bit about why we talk about life insurance at all in a divorce.
Where you have a plan in the divorce and agreement to have some period of child support payments over time, or some period of spousal maintenance or alimony payments over time, what would happen if your spouse or you, if the payor, were to pass away during that period of time when they were committed to or you were committed to making support payments?
As you can imagine, that would be a big problem.
It is common that where there is an agreement to have a period of time for child support or spousal maintenance payments in a divorce, there is also an agreement for the payor, at least, and sometimes for both spouses, to maintain insurance on their life.
Getting Basic Info re Life Insurance
And the information that we look to understand about your life insurance, if you have policies currently, is whose lives are insured and what policies do you have on your lives.
So, who’s the owner of the policy? That’s often the person whose life is insured, but it may not necessarily be. You could have your life insurance policy owned by a trust, for instance. But who owns the policy?
What’s the face value or the death benefit of the policy? So, if the insured person were to pass away, what is the amount of life insurance that would be paid to the beneficiaries?
You also want to understand what kind of a policy are we talking about. Is this a policy that is a whole life policy, and it’s valid for insured’s entire life? So, whenever it is that they do pass away, you will receive the life insurance benefit.
Or, instead, does it have a term of validity and then it expires? So maybe it’s a 20-year term or even a 30-year term or a 10-term when, if you or your spouse, whoever is the insured, were to pass away within that timeline you would receive the death benefit or the face value of the policy. But if you survive that period, hopefully, you don’t receive anything from the policy.
It’s common to see those shorter-term policies with a much higher death benefit or face value. So, you might have $1 million term policy that has a 20-year term, as well as a $200,000 whole life policy.
There’s a lot of variety within the world of life insurance, and I’m not covering all of it here, but the gist is, you really want to drill down into the details of both your life insurance policies and you want to look at, in light of what we have each committed to within the agreement, and also what we know we’re going to be relying on the other person for so long as our kids are minors, or for the next X number of years, what amount of life insurance feels appropriate to ensure or secure that obligation by our spouse, whatever it is, within the agreement, that we are counting on them surviving and being able to make good on?
Paying Life Insurance Premiums
Another component that you would clarify in an agreement related to life insurance is who is responsible for payment of the life insurance premiums.
More often than not, it’s the person who’s maintaining the life insurance and whose life is insured, but it very well sometimes may be the other spouse who is the beneficiary of the policy, or who benefits from the maintenance of that life insurance policy.
Oftentimes, if the spouse whose life is insured is also paying the premiums on the policy, you may have an agreement that, if they stop paying the premiums, the other spouse could make those premium payments to maintain the life insurance policy in effect, and then would in some way be compensated for that. Whether it’s by lowering their own support payments to that spouse, or by receiving more in support, or taking more out of a particular asset, there are many ways to address it, but sometimes that is spoken to.
Life Insurance Tax Consequences
There are different tax consequences to the way that a life insurance policy is owned and paid out. And so you do want to plan that either with an attorney who specializes in trust and estates work and is familiar with estate-related and end of life related tax consequences. Or, if it’s something that your life insurance broker or provider is very familiar with, you could get some guidance from them as well.
I am not going to go into detail there more than just to flag for you that you want to think that through a bit and be aware of any hidden tax consequences that there may be to how you hold or own, and how you pay out, your life insurance policy.
Naming Life Insurance Beneficiaries in Divorce
The final thing that we would speak to, and perhaps the most important thing that we would speak to, in a divorce agreement and in the divorce negotiation process would be, okay, you’ve each committed – both spouses have committed – to maintain their 20-year term life insurance policies with $1 million face value, who will be the beneficiary of the policies?
So, when you’re married, oftentimes your spouse is the 100% direct outright beneficiary of your life insurance policy. And when people are going through divorce people have different feelings about it.
Some couples want to continue leaving their spouse as the outright 100% beneficiary of their life insurance policy. Other couples would prefer to leave their children as the equal beneficiaries of the policy, with their spouse as the custodian of the funds. I don’t know what the age is in your particular state, but children under certain age aren’t even legally able to receive funds, nor would you want your 14-year-old to receive $1M (or maybe even your 34-year-old).
So something to think about is if you want to structure the naming of beneficiary for your life insurance policy or your spouse’s life insurance policy in a particular way.
You can also, by the way, have the life insurance proceeds go directly into a trust, the terms of which would be to fulfill your obligations under the divorce agreement and to provide for the health and wellbeing of your children.
And you could name your spouse as the trustee of that trust, or the co-trustee with maybe another family member of yours, or you could not name your spouse as the trustee of that trust.
Those are points for you and your spouse to negotiate as part of your discussion of life insurance in your divorce.
ESTATE PLANNING IN A DIVORCE
And then finally, I want us to talk a little bit about estate planning. Estate planning, or end-of-life planning is very distinct from a divorce, but it does come up in a divorce in the following way.
If you are divorcing, and let’s say you and spouse have two kids in common, and you are both planning on remarrying, you may want to commit to and ask your spouse to commit to leaving a certain percentage of your estate to your children.
Whenever it happens that you pass away, hopefully many, many, many years hence, well into the future, and whatever your estate is worth, you may negotiate an obligation for one of your or both of you to say, “I will leave 100% of my estate to our kids,” or, “I will leave 50% of my estate to our children,” or, “I will leave my estate to our children in a percentage at least as great as that that I leave to any future spouse or other children of mine,” or any variety of those.
It’s obviously pretty flexible what you commit to, but the gist is to have some kind of obligation in your divorce contract as to how you will or your spouse will do their estate planning in the future.
On that subject, and this will be different depending on the law in your particular state, but for instance, in New York, you can disinherit your children, you do not have to leave them money from your estate, but you cannot disinherit a legal spouse.
So, if you have an obligation to leave a certain—let’s say you committed in your divorce contract to leave 100% of your estate to your children of the marriage, and then you remarry and pass away in New York.
You need to have some sort of prenuptial or postnuptial agreement that addresses the fact that your new spouse is okay with and consents to the fact that they will not be receiving anything, or a lesser percentage than they would otherwise be entitled to, from your estate.
What you don’t want to do is not address that and then have some kind of estate battle between a future spouse and the children of your first marriage.
So that’s something to keep in mind, and your divorce mediator or divorce attorney should absolutely be able to take you through the details of that in your particular state.
That is it for Episode 17 on insurance and estate planning. I hope it was helpful for you.
Next up, we are going to be talking about the cost of the divorce process. I know that we addressed that from one angle in Episode 9, but we are going to be coming at it from a different angle in Episode 18. We are also going to talk a little bit about what it means to figure out “what the law says” on a given topic.
So, until then, thank you so much for joining me, and I will look forward to speaking with you soon.