How Divorce Affects Your Life Insurance Policy in Ireland

Divorce is a life changing and stressful event for all involved. There are so many things to consider during this time, from emotional to financial and legal. One aspect that is often overlooked is how divorce can affect your life insurance policy.

In Ireland, life insurance is a vital part of our financial planning and it is important to understand how divorce can impact on your life insurance policy, who it is owned in and who benefits from it. In this article we will explain how divorce can affect your life insurance policy and what you can do about it.

1. Checking Who a Policy is Owned In and Who is Beneficiaries are

The first way divorce can affect your life insurance policy is in relation to who a policy is owned in and who the beneficiaries are.

• Ownership: If you and your ex-partner have a joint life insurance policy, this is likely to be a joint last survivor policy, paying out on the first event (death). If you are divorced, you may want to consider converting this to two single policies. You may also want to consider who is entitled to own the policy and why it was owned in this joint way in the first place. This is something that you may need to agree on as part of your divorce settlement.
• Beneficiaries: It is common for spouses to be named as beneficiaries on a life insurance policy. This is especially true if there are no other dependent family members. After a divorce, you will want to change who your beneficiaries are. In Ireland, it is a simple process to complete a change of beneficiary form with your life insurance provider.

Important: If you do not change your beneficiaries after a divorce, on your death your ex spouse may receive the payout. This is not something you want to happen if there are other family members you would like to provide for.

2. Life Insurance and Maintenance Agreements

A life insurance policy is often used to cover a maintenance agreement if there are children or a spouse dependent on you for income.

• Court Orders: As part of a divorce settlement, a court in Ireland may order one spouse to take out a life insurance policy to cover ongoing maintenance payments. This is to ensure that maintenance payments continue if the other spouse dies.
• New Policies: A court may also order that a new life insurance policy be taken out to cover the amount of maintenance owed. The terms of the policy may include a minimum payout amount and who the beneficiaries are.
• Example: If you are divorced and have children, a court may order that your ex spouse is entitled to maintenance for the rest of your life. As part of this, you may be ordered to take out a life insurance policy with your children as beneficiaries to ensure that the maintenance payments are made.

3. Joint Mortgage Protection Policies

Many couples in Ireland have a joint mortgage protection policy. This is a common addition to a mortgage as it covers the mortgage debt if the primary breadwinner dies.

Keeping the Family Home: If you and your ex are keeping the family home, you will need to change your mortgage protection policy to reflect the new reduced mortgage. You may need a new single policy.

Selling the Family Home: If you and your ex are selling the family home and paying off the mortgage, your mortgage protection policy will usually end. Check with your insurer to confirm and update any paperwork.

4. Who Pays the Premiums?

Divorce can greatly impact your financial situation and ability to pay for existing life insurance policies.

• Joint Policies: If you are keeping a joint life insurance policy, you and your ex will need to agree on who pays the premiums. This is something you should agree on as part of your divorce settlement.
• Single Policies: If you take out two single life insurance policies, you will be responsible for paying the premiums on your policy and your ex will be responsible for paying the premiums on theirs.

Tip: Discuss premium responsibilities with your solicitor or financial advisor to avoid any gaps in cover.

5. Tax

Life insurance policies in Ireland have tax implications and these are especially important in the context of a divorce.

• Capital Acquisitions Tax (CAT): If your life insurance policy pays out to anyone other than a spouse or civil partner, the benefit may be taxable in Capital Acquisitions Tax (CAT). This is something to consider if you change your beneficiaries to children instead of your spouse.
• Tax Relief: You may be able to claim tax relief on certain life insurance premiums, such as a pension based life insurance policy. After a divorce, your tax relief may change.

6. Protecting Your Children

If you have children, life insurance is even more important when going through a divorce.

Trusts: You may want to consider setting up a trust on your life insurance policy to ensure that the benefit is paid directly to your children and not your ex. This is a good way to protect your children from your ex’s potential spending habits.

Guardians: If you have children, you will need to appoint guardians to look after them and manage any inheritance if you are not around. You can do this in your will and also by setting up your life insurance policy to pay out to your guardians.

7. Reviewing Other Financial Arrangements

Your life insurance is often linked to other financial arrangements and plans, such as your will and pension. After a divorce, it is worth reviewing your overall financial situation.

• Wills: You will need to update your will to ensure that your life insurance benefits are in line with your wishes for your estate.
• Pensions: If you have a pension based life insurance policy, you may need to change who your pension is benefiting in the event of your death. Your pension should also name a beneficiary.

What to Do After a Divorce

1. Check Your Policies: Find out who your policies are owned in, who your beneficiaries are and what your policies cover.
2. Talk to Your Solicitor and Financial Advisor: They can help you with court orders, tax implications and changing your policies.
3. Inform Your Insurer: Let them know about any changes you need to make, such as changing beneficiaries or if you have a joint policy.
4. Plan for Your Children: Consider who you want to provide for and how much you need to cover them.

Conclusion

Divorce is a big life change and your life insurance should reflect this. Whether it is changing beneficiaries, dealing with court orders or joint policies, it is important to understand how divorce can affect your life insurance in Ireland. With the right advice and precautions, you can ensure that your life insurance policy is suitable for your new situation and that your loved ones are financially provided for.

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