How Does Divorce Affect Your Insurance Coverage?

How Does Divorce Affect Your Insurance Coverage?

May 30, 2023

Divorce is a difficult and complex process, filled with emotional and legal challenges.

Amidst the chaos of untangling your life from your former spouse, it can be easy to overlook administrative details such as the status of your insurance policies. However, neglecting to protect your insurance coverage during a divorce can have significant financial and legal consequences that can impact your finances for years to come.

Divorce can impact several types of insurance policies, including health, auto, home, and life insurance. Neglecting to address insurance coverage during a divorce can result in costly gaps in coverage, leaving you and your loved ones vulnerable to unexpected events. Maintaining insurance coverage throughout a divorce offers peace of mind for all parties involved, providing a sense of security and stability during this challenging time of transition. Protecting your insurance coverage during a divorce is crucial to ensure that you and your family are fully protected in case of unforeseen circumstances.

So, how does one protect their insurance coverage during a divorce? We will explore some strategies you can use to ensure that you and your family maintain a shield of financial protection against potential damages, accidents, or liabilities that may arise.

How long can I stay on my spouse's health insurance after a divorce?

One of the most pressing concerns for individuals going through a divorce is what happens to their health insurance coverage. When you and your spouse are no longer together, knowing how to secure adequate coverage for yourself can be challenging. However, it's essential to be aware of your rights and options regarding insurance, including how long you can stay on your spouse's insurance after a divorce.

The answer to this question varies depending on a few factors. In many cases, you may be able to stay on your ex-spouse's health insurance policy for a certain period, usually up to 36 months. This is because of the Consolidated Omnibus Budget Reconciliation Act (COBRA), which allows individuals who lose their employer-based health coverage due to certain life events, including divorce, to continue coverage for a limited time.

However, it's worth noting that COBRA coverage can be expensive, as you may actually pay 102% of the premium cost plus a 2% administrative fee.

Who is responsible for paying for health insurance after a divorce?

Divorce can raise a lot of questions about who is responsible for various financial obligations, including health insurance. When it comes to health insurance after a divorce, there are a few factors to consider.

If you have children, one or both parents may be required to provide health insurance coverage for them. The specifics of this requirement can vary based on state law, the terms of your divorce agreement, and other factors. In some cases, one parent may be required to maintain a health insurance policy for the children, while in others, the responsibility may be split between both parents.

For individuals who don't have children, the responsibility for paying for health insurance after a divorce can be less clear. In some cases, one spouse may be required to provide coverage for the other as part of the divorce agreement. In other cases, each spouse may be responsible for securing their own health insurance coverage.

It's worth noting that if you're required to provide health insurance coverage for your ex-spouse or children after a divorce, failing to do so could result in legal consequences. For this reason, it's crucial to carefully review the terms of your divorce agreement to confirm that you understand your responsibilities regarding health insurance coverage.

Can divorced couples share health insurance policies?

Unfortunately, the answer is often no.

In most cases, health insurance policies are tied to a specific individual or family, and coverage cannot be shared between divorced spouses. Even if both individuals are listed on the same policy, the coverage will typically only extend to the primary policyholder and their dependents.

However, there are some exceptions to this rule. For example, if you and your former spouse own a business together and have a group health insurance policy for your employees, you may be able to continue sharing that policy after your divorce. Additionally, if you have children together, you may be required to provide health insurance coverage for them and may be able to share a policy for that purpose.

While not the norm, in certain cases, if one spouse has serious health problems and relies on health insurance, the couple may opt for legal separation instead of divorce. By remaining legally separated, the spouse can maintain their health insurance without any loss of coverage.

How does divorce affect car insurance?

One of the most significant changes is that you will likely need to remove your ex-spouse from your car insurance policy. If you and your ex-spouse shared a car insurance policy, contact your insurance company to have them removed as a driver on your policy. If you don't, your ex-spouse could be covered by your policy even if they're not driving your car.

Additionally, if you and your ex-spouse own a car together, you will need to determine who will keep the car and who will be responsible for insuring it. If you both plan to keep the car and continue sharing it, update the car title and the policy to reflect both your names as owners and drivers. If one of you will be keeping the car, they will need to purchase a new policy in their name and remove the other person from the policy.

It's important to review your auto insurance policy after a divorce and make any necessary changes to provide proper protection for your family and your assets. Consult your insurance provider to understand your options and responsibilities and to make sure that you have the appropriate coverage for your needs.

How does divorce affect long-term disability benefits?

The question of whether disability benefits are considered marital property can be complicated, and there is no one-size-fits-all answer. 

If you are the one receiving disability benefits, you may be concerned about whether your ex-spouse will be entitled to a portion of those benefits after the divorce. The answer will depend on the laws in your state and the terms of your divorce settlement. 

In some cases, disability benefits may be considered separate property and not subject to division. In other cases, your ex-spouse may be entitled to a portion of your benefits, depending on factors such as the length of your marriage and your overall financial situation.

What are the rules for life insurance beneficiaries after a divorce?

Divorce can significantly impact your life insurance policy, particularly when it comes to the designation of beneficiaries. In many cases, individuals will designate their spouse as their primary beneficiary. If you get a divorce, you will want to change the beneficiary designation to reflect your current circumstances.

In California, the laws surrounding life insurance beneficiaries after a divorce can be complex and will depend on several things. Generally, if the policy owner and the beneficiary are divorced, the former spouse will no longer be entitled to the policy proceeds upon the policy owner's death. However, if the policy owner does not change the beneficiary designation, the ex-spouse may still receive the proceeds of the policy.

It is crucial to review your life insurance policy and beneficiary designations regularly, especially after significant life changes such as divorce. Working with a Certified Divorce Financial Analyst® (CDFA®) can assure that your beneficiary designations align with your current wishes and that your loved ones are protected in the event of your death.

How can I maintain my insurance after a divorce?

Once you have identified the insurance policies that need to be changed or maintained during your divorce, the next step is to develop a plan for ensuring that you and your family are fully covered after the divorce is final. 

Here are some strategies to consider:

  1. Negotiate a settlement that addresses insurance coverage: As part of your divorce settlement negotiations, be sure to include insurance coverage for yourself and your children. It may be possible to arrange a settlement that requires your ex-spouse to maintain certain insurance policies, such as health or life insurance, to protect you and your children after the divorce.

  2. Consider COBRA or other health insurance plans: If you were covered under your spouse's health insurance policy, you may be eligible for continued coverage under COBRA. However, these options can be costly, so explore all your options and compare costs to find the best solution.

  3. Update beneficiary designations: Review the beneficiary designations on your life insurance policies and retirement accounts after the divorce. If you do not revise these designations, your ex-spouse may still be entitled to receive the benefits, even if you have moved on and started a new family.

  4. Purchase new insurance policies: Depending on your needs and circumstances, you may need to purchase new insurance policies after your divorce is final. This could include life insurance to provide for your children's future needs or disability insurance to protect your income if you are unable to work. Consider using insurance to secure child or spousal support. 

By taking these actions, you can ensure that you and your family are fully covered and protected after your divorce is final. However, every situation is unique, so it's essential to consult a qualified insurance professional to develop a comprehensive plan that meets your specific needs.

Work with a Certified Divorce Financial Analyst®

Protecting your insurance coverage during a divorce is as important as safeguarding any other financial asset. By understanding your options and seeking professional guidance, you can minimize the risk of being left without the necessary coverage. 

As with any complex financial matter, it's always wise to work with a Certified Divorce Financial Analyst® (CDFA®) to guide you through the process. A CDFA® can help you make informed decisions about your insurance coverage and assist in creating a post-divorce budget that takes your future needs into consideration.

Have any questions? Unsure about your next steps? Book a consultation today.