By Anup Seth
Divorce is not an easy decision and can be an anxiety-inducing process for both parties involved. Even in the most amicable splits, legal proceedings can put massive burden on individuals involved and lead to a messy situation. Among the big fallouts of a divorce is the financial impact. Divorce typically involved divvying up of existing assets and liabilities and can derail the financial plans you have set into motion already.
A divorce is a huge turning point in life and therefore requires re-looking of the entire financial planning process. Your existing financial plans account for joint goals, quite possibly made in discussion with your spouse. A divorce, therefore, calls for a reorienting of your goals as an individual and accordingly changing your financial plan or drawing up a new one.
When you are financial planning, investing happens across asset classes and a life insurance plan is an important consideration to make for your longer-term financial security. Ignoring or missing a life insurance plan can cause significant damage to your financial preparedness and therefore must be looked at with precision.
So, let’s look at some steps that can help you manage the financial fallout of a divorce and also guide you regarding how life insurance policies can be managed:
Consult a lawyer or a financial expert
When you are in an emotionally charged situation like a divorce you are likely to take kneejerk decisions, which can have far-reaching impact on your financial stability. The best approach in such a situation is to consult a lawyer or a financial expert and let them guide your decision-making process.
List all assets & liabilities
When a divorce is finalized, it will affect a variety of your assets and liabilities. The division of assets and liabilities will most likely be determined by the court, depending on the laws of the country in which the couple resides. It is important that you list down all your financial assets including Life insurance so that you have a full view of your financial belongings and can determine if any actions need to be taken.
Dealing with your Life Insurance
– Update your beneficiary:
Life insurance is purchased to keep your family financially secure in the event of an unforeseen event. Quite naturally, in most cases, married couples name their spouse as the beneficiary in their life insurance policy. In case of a divorce, you may want to update your child or parent as your beneficiary.
– Irrevocable beneficiary:
In some cases, you may not be allowed to change your beneficiary. For instance, if you have purchased your life insurance policy under the Married Women’s Property Act, then the spouse cannot change the beneficiary at any point. The wife will receive the payout even after a divorce. To explain simply, Married Women’s Property Act helps secure a woman’s finances from debtors, relatives claiming husband’s assets, etc. In case, the ex-spouse passes away before the policyholder,
the legal heir of the policyholder will receive the claim amount.
– In case of a joint policy or multiple policies, divide the policies:
It is not surprising for married couples to have multiple life insurance policies like joint savings policies, etc. In such cases, if the policy has an investment component it’s advisable to surrender the policy and avail and divide the fund value. Another option is to assign it to one party with a mutually agreed plan of action on payment of future premiums and settlement between the two spouses. In the case of pure-term policies, both parties can change the beneficiary.
Conduct the financial planning exercise with a fresh lens
After the divorce proceedings have been concluded, it is of utmost importance that you reorient your financial plan to match your individual goals. It is likely that any financial planning you may have done while married, was based on certain assumptions like at what intervals you will require cash flows in the future. Take a pause and look at what the new horizon looks like and create a financial portfolio from that perspective.
Your financial assets including life insurance are an unavoidable part of every divorce settlement, regardless of the challenges presented by the situation. It is ideal to go through the entire process clinically and avoid decisions that can derail your financial stability in the longer term.
(The author is Chief Distribution Officer at Edelweiss Tokio Life Insurance. Views expressed above are personal)