Life Insurance and Divorce

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Life insurance is not something that most of us like to think about or discuss.  However, in the context of divorce it is very important and something that needs to be addressed.  While this article talks about life insurance related to divorce, the concepts also apply to unmarried parents or unmarried persons where one may owe money to the other.

The basic idea behind life insurance in a divorce is that if someone owes money to someone else – whether for spousal support, child support or a property settlement – and the person who owes the money (the payor) dies, the person who was relying on that money is out of luck.  If the payor has life insurance, the recipient is still provided for.

There are three main considerations in life insurance: How much, how long and beneficiary designation.

How much life insurance is needed?

The amount of life insurance that is needed is usually the amount of money owed to someone.  For example, if someone owed a $50,000 property settlement, then $50,000 in life insurance coverage would be needed.  One generally accepted exception to this rule is that you don’t necessarily need dollar-for-dollar coverage to insure a spousal support award.  The reason for this is that spousal support is taxable to the recipient but life insurance is not.  This means, for example, that if someone was supposed to receive $100,000 in life insurance over a period of several years, they would pay taxes on that support and so they really wouldn’t receive $100,000 – they might actually receive $75,000 after paying taxes.  In this example, then, $75,000 would be an appropriate amount of life insurance to insure the $100,000 spousal support award.  This is only an example which is offered for the purpose of better explaining the concept.  You should do your own analysis on how much insurance is appropriate in your particular situation.

When it comes to child support, the easy answer is that you should maintain the same amount as you would pay in child support over time.  However, this does not take into account the fact that if one parent passes away the other parent will have substantially increased expenses for increased childcare, now having to pay all of the expenses, etc.  For this reason, people will often “round up” and maintain more life insurance to benefit the children than you would otherwise think necessary.

How long do I have to maintain life insurance?

This answer is fairly straightforward – you need to maintain life insurance for as long as you owe money to someone, including any arrearage.  An “arrearage” means past-owed money, i.e., payments that you owed but haven’t paid.  If you owe back payments, you need to maintain life insurance until you are completely paid up.

Who is the beneficiary?

In spousal support and property settlement situations, the recipient of the money is going to be direct beneficiary of the life insurance.  The reason is fairly obvious – if someone was owed money, they should receive the life insurance.

What about for child support?

People sometimes think that their children should be the beneficiary of the parent’s life insurance policy.  They shouldn’t!  The idea is well-intentioned but a non-starter.  Consider this – what if you passed away and your 5-year-old received $250,000 and has a Hot Wheels fascination?  Do you get the idea?  The money should either go to the other parent to use for the children or should go into a trust for the benefit of the children.

People very frequently name the other parent as the direct beneficiary of life insurance when there are children involved.  The basic idea is that the other parent is now responsible for all of the children’s care and expenses and therefore should have access to the money to make necessary purchases.

If someone is not comfortable naming the other parent as direct beneficiary, then the next most common approach is to set up a trust to hold the money.  The life insurance policy will name the trust as the beneficiary.  The other parent is typically named the trustee of the trust.  One benefit of establishing a trust is that there will be specific parameters for using the money.  One of the downsides is that the person maintain the insurance has to do some estate planning to make sure this is set up properly.  (This isn’t necessarily a bad thing – you should always update your estate plan post-divorce anyways.)

Other considerations.  There are a number of other considerations in addition to those mentioned above.

What if it is too expensive?

Sometimes life insurance is cost prohibitive or not available at all.  If someone has previously had a serious health issue they may simply not be able to obtain coverage.  One way of dealing with this is to have that person leave the other person assets in their estate plan which are sufficient to “pay off” the amount owed to the recipient.

Who pays for the policy?

The generally accepted rule is that it is the responsibility of the person owing the money to maintain and pay for the life insurance.  A person who is owed money also has the right to purchase additional coverage on the payor at his or her own cost (i.e., at the cost of the person who is owed the money).

Can I change policies?

A person is typically allowed to change life insurance policies as long as the same amount of coverage is maintained and the beneficiary is notified.  A new judgment will need to be obtained which specifies the new policy information.

Conclusion.

This article covers the main considerations in life insurance, but it is not exhaustive.  You should speak with your mediator or attorney if you have additional questions regarding life insurance in the divorce context.  Once you have a signed judgment, the next step will be to submit the judgment to the applicable life insurance company.

Picking the Right Process – Uncontested Divorce vs. Kitchen Table Mediation

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Despite what popular culture tells us, it is very common for people who are getting a divorce to reach their own agreements.  Typically people who reach their own agreements come up with the “big picture” agreement but still need some assistance fine tuning the details or drafting documents.  It’s at this point where one person will usually call a lawyer or mediator and say they want to do an uncontested divorce.  Although an uncontested divorce may make sense in your particular situation, kitchen table mediation should be considered as well.

Uncontested Divorce.  An uncontested divorce involves one lawyer working with one client to draft the agreement the parties have reached.  Alternatively, if no agreement has been reached, then the lawyer may work with the client to create a proposal to give to the other spouse.

The lawyer in an uncontested divorce only represents the spouse who hired him or her and cannot represent both people.  The job of the lawyer is to provide legal advice to the client who hired the lawyer and to draft the documents on his or her behalf.  Clients who call about an uncontested divorce are often disappointed to learn that one lawyer cannot represent both clients even if the clients have reached their own agreement.

You can learn more about uncontested divorce here.

Kitchen Table Mediation.  In kitchen table mediation both clients work with one mediator to fine tune the agreements they have already reached.  If the clients have not already reached their own agreements then the mediator can work with both of them to create a mutually beneficial settlement.  Once a complete agreement has been reached the mediator drafts the documents on behalf of both clients.  The mediator works with both people but does not represent either person and cannot provide legal advice to either person.

You can learn more about kitchen table mediation here.

Uncontested vs. Kitchen Table Mediation.  The main difference between these two processes is that both clients participate in the kitchen table mediation whereas only one client participates in the uncontested divorce.  One of the potential issues with an uncontested divorce is that the person who did not hire the lawyer may be concerned that the documents were drafted by “their ex’s lawyer.”  This may make the non-hiring spouse suspicious and cause them to hire their own lawyer to review the documents.  Although there is nothing wrong with this, it usually creates a certain level of mistrust and often adds more expense than the clients were planning on.

Kitchen Table Mediation tends to cost less and take less time for a couple of reasons.  First, in kitchen table mediation both clients receive the same information at the same time from a neutral source, i.e., the mediator.  Instead of getting conflicting advice, clients receive neutral information which they can evaluate for themselves.  Next, both clients get the benefit of offering input in the drafting of the judgment instead of one lawyer drafting the documents on behalf of just one person.  Since the

mediator worked with both clients it is more likely that the documents will reflect the agreement that the parties reached (versus one lawyer drafting on behalf of his or her client).

The Verdict.  If both people are willing to participate in the process then kitchen table mediation usually makes more sense than an uncontested divorce.  However, if someone is not willing to come and meet with their spouse and the mediator then an uncontested divorce may be the better option.

Health Insurance, Divorce and the Affordable Care Act

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One of the biggest concerns for people going through divorce is losing health insurance. The Affordable Care Act (aka “Obamacare”) significantly changed the way health insurance is dealt with in divorce. In short, the Affordable Care Act makes it much easier to obtain health insurance coverage after you go through divorce. Here are the basics that you need to know:

Open Enrollment. Open Enrollment is the period of time when you have to apply for health insurance unless an exception applies (called a “special enrollment period”). The open enrollment period for 2016 is November 1, 2015 through January 31, 2016.

Special Enrollment Period. You can apply for health insurance during a “special enrollment period” if you have 1) a qualifying life event or 2) other complicated situation.

Qualifying Life Event. There are many different qualifying events. The one that most commonly applies in a family law situation is divorce. Other qualifying life events that may occur during the divorce process include loss of job, loss of health insurance coverage or significant reduction in income. If you do not qualify under one of these scenarios, you should determine if there are other qualifying life events that may apply in your situation. If you are not eligible under a qualifying life event, then you should determine whether you can apply as a “complicated situation.”

Complicated Situation. If you have a particularly complicated situation but do not have a “qualifying life event”, you should discuss your circumstances with a health insurance broker or other HealthCare.gov worker. Your circumstances may still qualify you for a special enrollment period. Domestic abuse and spousal abandonment are two situations which may qualify as a complicated situation. There are potentially other situations which may qualify you as well.

COBRA. COBRA is a federal law which was the basis for maintaining health insurance after divorce prior to the passage of the Affordable Care Act. COBRA allows you to maintain the same health insurance plan you have had for up to 36 months. However, COBRA is often expensive and does not apply in all situations (e.g., the employer must have at least 20 employees). COBRA may still be a good option if you need to maintain your specific health insurance plan.

Tip: You may be eligible for COBRA through your soon-to-be-ex’s employer and a private policy through the Affordable Care Act. You should check to see how much COBRA costs and compare it to the cost of a plan through the Affordable Care Act. Cost is obviously a significant consideration, but you should also compare the level of coverage and whether your preferred healthcare providers are covered under the new plan.

Tip: You can apply for health insurance through Healthcare.gov on your own or you can work with a health insurance broker (some states run their own individual exchanges although Oregon no longer does). You do not pay a health insurance broker for their services. Health insurance brokers get paid by the insurance companies. It may make sense to work with a broker since there is no additional cost to you and they know how to navigate the health insurance system. One health insurance broker you may consider using is Portland, Oregon based Century Benefits.

End of Prior Coverage. Generally speaking you will continue to be covered under your ex-spouse’s health insurance through his or her employer through the end of the month in which the divorce is final. However, some employers will terminate coverage for a now-former spouse immediately upon learning about the divorce. It is important for the employed spouse to check with the employer before the divorce is final to learn when the ex-spouse will be removed from coverage. This information should be shared with the spouse who will be losing coverage.

Legal Separation. It is fairly common for people to get a legal separation rather than a divorce so that the former spouse can continue health insurance benefits. If you are considering a legal separation for health insurance reasons it is necessary that you check with your employer to determine whether the employer treats legally separated spouses as married or as divorced. Your employer’s HR department should be able to provide you with this information.

Summary. It is much easier to obtain health insurance after a divorce than it used to be. However, there are specific timelines that may apply to your situation. It is important that you obtain information about health insurance before you get divorced so that you have a plan for insurance once the divorce is final. You can obtain more information through OregonHealthCare.gov or HealthCare.gov.

This is only an overview. You should discuss the specifics of your situation with a health insurance broker or other health insurance professional.

Obtaining Certified Copies of Your Divorce Judgment

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A “certified” copy of a judgment contains a certificate or seal from the court which proves that the judgment is an accurate copy which came from the courthouse.  Most of the time a non-certified copy of your judgment will be sufficient for whatever you may need it for.  However, there are a number of reasons you may need a certified copy of your judgment.  The court does not automatically send you a copy of your judgment so you, your mediator or your attorney will need to arrange to obtain a copy and pay the applicable fee.

Here are some of the most common reasons you would need a certified copy of you divorce judgment in Oregon:

  • Name change
  • If one person has PERS, even if the account is not being divided
  • Registering your judgment in a different state
  • Life insurance

Cost of Certified Copies.  In Oregon a certified copy of your judgment costs $5 plus $.25 per page.  For example, if you have a 20 page judgment, the fee will be $10 (.25 x 20 pages = $5; plus $5 for certification = $10).

Obtaining Certified Copies.  Certified copies need to be obtained directly from the courthouse where the case exists.  You can obtain the copies in person or order them via mail; some courthouses allow you to order them by email or online.  If you go in person you can usually obtain the document immediately.  It usually takes the court several days after the judge signs the judgment for your judgment to be available.  If your judgment was signed recently you should call the courthouse to see if it is available before going there.  If you order it via mail it could take 2 to 4 weeks or longer.  You may need to provide a pre-paid, self-addressed envelope depending on the county your case is in (Multnomah county does not require this).

Here are the addresses for the three main courthouses in the Portland-metro area:

Washington County Courthouse
145 NE 2nd Ave.
Hillsboro, OR 97124

Clackamas County Courthouse
807 Main St.
Oregon City, OR 97045

Multnomah County Courthouse
1200 SW 1st Ave.
Portland, OR 97204

QDRO’s.  Certain types of retirement accounts require something called a Qualified Domestic Relations Order (QDRO) in order to divide the account.  Your attorney or mediator will help you identify whether you need a QDRO.  If your case requires a QDRO, you will need a certified copy of it in order to divide the retirement account.  The process for obtaining a certified copy of a QDRO is the same process as obtaining a certified copy of your divorce judgment.