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Insurance and divorce
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November 11, 1998: 11:59 a.m. ET
When a marriage is over, insurance can be among last of spouses' concerns
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NEW YORK (CNNfn) - While battling over cars and cash, a divorcing couple can often overlook a critical factor in their lives after a split: insurance.
Obvious assets such as homes, savings accounts and even stocks tend to loom large in the minds of divorcing people because of their inherent cash value -- they can usually be sold at any time for money.
The benefits of insurance, however, are hidden and its importance may only become apparent once it's too late for you to do anything about it in your legal proceedings.
For example, in the matter of life insurance, ownership becomes very important because the person who controls the policy can choose the beneficiary.
An ex-wife who may have helped her husband pay the insurance premiums may learn later he has made his new wife the beneficiary, effectively snatching the coverage away. What's worse is she has little recourse if the divorce settlement made no stipulations for the policy.
Ficus trees and policies
Even divorcing couples who are thinking about where the insurance will go are not free of problems, according to Sharon Sooho, a Newton, Mass.-based attorney.
"Anything can become an issue, whether it's the ficus tree in the living room or the $1 million life insurance policy," said Sooho.
Insurance, she said, can become another weapon divorcing spouses use to take swings at each other.
"Sometimes the wife says she wants to be in an HMO. Sometimes she doesn't," explained Sooho. "One may want a certain coverage but the other one doesn't want to pay for it."
Couples may acquire many different insurance policies over the course of their marriage but coverage for property is pretty straightforward. If you keep the house, you usually have to pay for homeowner's coverage. If you get the Buick, you pay the auto insurance.
When it comes to divorce it's most likely only two types of insurance will be cause for contention.
Life insurance will perhaps be the first type of insurance both sides will look at. The way it will be handled usually depends on what kind of life insurance they are holding.
Term insurance doesn't have any immediate cash value. If you discontinue making your premium payments, you won't get any cash value back.
Whole life, on the other hand, does have a cash value. You get coverage while you are paying but as you do so, you increase the amount of money you would receive were you to return the policy to the insurer.
Because the whole life policy has gathered value, it is often considered as an asset in the divorce settlement process.
Whether it's a term or whole life policy, it has value beyond simply what it would bring in if it were turned in.
Very often a divorce will require one spouse to pay alimony to the other. In addition, if the couple has children who are still minors, child support will often be awarded as well.
Alimony and/or child support and life insurance may not seem related on the surface, but in the eyes of divorce courts they are intertwined.
Most divorce courts seek to ensure such post-marriage support will be maintained, even in the event of the payor's death or disability.
To that end, a court will usually require whoever is paying the support to maintain a life insurance policy that will cover the costs for however long that support is supposed to continue.
In some states, such as Massachusetts, this is codified into law and is simply required in any divorce settlement. In other states, the court will decide how the coverage will be set up.
Courts also have the option of ordering the person paying for the support to maintain disability insurance in the event they can no longer work for whatever reason.
This would ensure support continues to be paid, but courts are currently more reluctant to order disability insurance to be picked up.
A divorcing spouse may be unwilling to go the extra mile to make sure alimony will always be paid, but if they are concerned about ensuring their child support will always be there, they can pick up additional insurance.
This insurance can include long-term care policies to make sure even an extended medical illness won't render them incapable of paying for their children's needs.
COBRA's bite
Once the issue of maintaining support is taken care of, you'll want to turn your attention to the other main insurance issue; health care.
Health care insurance becomes a trickier situation than life insurance in divorce proceedings, explained Janet Thompson, attorney at Sherman, Williams & Lober.
"In most cases, once marital status is terminated, there is no right to health benefits," she said.
Often, a spouse is getting health care coverage through the employer-sponsored health insurance of the other. While you're married, everything's fine. Once you divorce, though, most employer plans don't allow for payment to non-spouses.
Coverage for children can continue on employer plans, however.
In her practice, Thompson does see divorce settlements arranged so one spouse does pick up health care premiums, but that most often happens in cases where a long-term marriage ends and one person has a spouse who hasn't worked outside the home for a long time.
Outside of an arrangement like that, you can look into getting temporary health care coverage under COBRA, a federal health care law with provisions for workers and their families.
If you have been getting coverage through your spouse and if your spouse's employer has 20 workers or more, you can get health care coverage through COBRA.
COBRA will cover you for 36 months after a divorce and it will give you the same coverage you were receiving under your spouse's plan.
Like its namesake, though, COBRA can bite you. Even though it gives you the same coverage you had previously, it won't give it to you at the same price.
When you were under your spouse's workplace health plan, the employer picked up part of the costs, so you were paying a reduced premium. With COBRA, you'll have to pay as much as 102 percent of what the coverage cost under the employer-sponsored plan.
Additionally, since COBRA ends in 36 months you'll eventually have to obtain coverage in some other way at the end of that period. If you develop an illness during that time, you'll be faced with trying to get health care coverage with a pre-existing condition, usually an uphill battle.
Attorney Thompson said for these reasons, it is better to view COBRA coverage as a quick fix and you should move to get off it as quickly as possible.
"A lot of times, other options which are available are better," she said. "Sometimes you can find an HMO that has a local network. That may be more cost effective."
If you're approaching age 65, you can receive coverage from Medicare. And it may not be easy, but finding a job with health benefits would probably be the ultimate solution to your problems.
Surprisingly, you may be able to enlist your ex-spouse in this job search, said Thompson. While divorce is often contentious, both spouses are often better off financially by cooperating in some manner.
In the case of health insurance, the divorce settlement could mean one person picks up the health care costs of the other. The sooner that person can help their ex- find a job with benefits, the sooner they can quit paying for those costs themselves.
Despite the animosity surrounding divorce, Thompson said cooperation can be for the best for both sides.
"You can agree to pay for COBRA coverage for one year until your spouse finds a job. You can help them find alternative health coverage," she said.
"If you don't resort to litigation, you can negotiate everything in your settlement and come up with compromises."
-- by staff writer Randall J. Schultz
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