Can an Ex-Spouse Collect Life Insurance Money?

Life insurance is often put in place to protect spouses if their partner passes away. After all, they often end up responsible for the funeral costs as well as settling remaining debts, which can be expensive. A partner can also miss out on the remaining earning power of the deceased, and struggle to retire.  A life insurance policy will cover these costs and bring some peace of mind during a difficult time. However, confusion often arises when the insurance policyholder gets divorced. This raises the question of if an ex-spouse can collect life insurance money. The answer is complex – here’s what you need to know.

In what situations can an ex-spouse collect life insurance money?

In most states, you can collect life insurance money if you are legally the beneficiary on the policy, regardless of your relationship to the deceased. If you were married to the policyholder and they named you as the beneficiary, you can still receive the money if they die as long as they have not changed the beneficiary of the policy.  Usually, during the divorce process, this issue comes up and the policy is either canceled or the beneficiary changed.  Remember, a divorce decree could require an ex to remain as the beneficiary of a policy.

In what situations can an ex-spouse not collect life insurance money?

In some states, like Michigan, there are legal provisions that prevent divorced spouses from receiving their former partner’s life insurance benefits. This helps to prevent conflict among families, and in the worst cases, life insurance fraud. There are also some insurance policies that have specific clauses in them to prevent ex-spouses from receiving a payout. In these policies, there is a specific line stating that if the beneficiary and the policyholder get divorced, the beneficiary can no longer collect benefits.

How should I handle life insurance during a divorce?

First things first – if you’ve already been divorced for a while and have an insurance policy in place, it’s worth double-checking your beneficiaries. If your ex-spouse is on the policy, you are the only one who can change it. Making that change now can help prevent serious conflict for your family in the future. Worried that your partner or family friend may have forgotten to change their beneficiary? It’s worth bringing the situation up with them now. Although it’s up to them who to leave their policy to, a little reminder can be helpful.

If you are currently in the midst of a divorce, it’s worth revisiting your life insurance policy now to make sure that it reflects your current wishes and needs. There may be some situations in which you still want to name your ex-spouse as a beneficiary. For example, if they would still be the person most likely to handle your funeral costs or remaining debts, it may make sense to have them listed as a beneficiary even if you are divorced. If the two of you have children together, it may also benefit you both to keep them on your policy. You can also name your children as beneficiaries and name your ex-spouse as a trustee. The option you choose will depend on what you feel most comfortable with and what is easiest for your family.

If you are the primary caregiver of your children, but you are not the primary income earner, you may want to consider some additional solutions to protect yourself and your children. Specifically, you may want to consider taking out your own life insurance policy on your ex-spouse, paying the premiums yourself. This will ensure that if they pass away, you will have some money to replace the child support and/or alimony that they would have given you.  At a minimum, final expense life insurance can at least cover burial costs.  If you are thinking about taking out a policy on your ex, you will need to compare quotes for different life insurance policies and from different companies.  Make sure to do this for the best deal.

Keep in mind that you can always change the beneficiary on your life insurance policy in most cases. It’s normal for relationships to change over the course of your lifetime, and some people change their beneficiaries multiple times over the course of their policy. There are a few cases in which you may not be able to change your beneficiary. These are called irrevocable beneficiaries. Before taking out a life insurance policy, you should always confirm that you can change the beneficiaries later on if things change.

If your life insurance policy has cash value, this can add an extra layer of complication to the divorce. Generally, the cash value can be considered as part of your joint assets as a couple, similar to any savings accounts or other investments you hold together. While there are no legal requirements as to what you need to do with the money, it makes the most sense to cash the policy out, split the money equally, and then each take out your own separate life insurance policies on your own.

Divorces can be tricky, and life insurance confusion adds another layer of stress to the situation. Make sure to continually update your life insurance policy to reflect your preferences as your life goes on. This will prevent an unwanted ex-spouse from being able to collect on your life insurance policy.