In the context of a divorce case, most people think primarily about the areas of their lives that stand to make their money. These are investments, their place of employment, and their home. Income generators, passive or active, are what you are likely thinking about when it comes to preservation during a divorce. Since divorce is a time of relative crisis, it would be expected to stop thinking about how to grow wealth and start thinking about how to protect the wealth you have and minimize losses.
What I tend to think about as clients begin a divorce case is that it is wise to have both mindsets, not only during a divorce but in the rest of our lives. Unfortunately, many people overthink one or the other. I like to describe it in "make a buck" or "save a dime" mode. Some of us can't help but think about ways to make money and generate income. Others among us are constantly scrimping and saving and doing what it takes to lead frugal lifestyles.
There is nothing wrong with either mindset, in and of themselves, but I think we are all best served to work both lines of thought into our everyday lives. The money we make will go a lot farther if we don't spend excessive amounts on things we do not need. While it may not seem so bad to finance a new car when you take out the loan, the fact that you see $500 each month going towards that car payment can become disheartening in the middle of a contentious and expensive divorce.
We also need to be aware that there are parts of our lives where we should devote some resources to preserving and insuring ourselves, our families, and our wealth. Having an excellent defensive and offensive game plan is another way to put this. You don't want to become too focused on either area, but finding the sweet spot in investing, insuring, and earning will lead to future success in your finances.
In today's blog post from the Law Office of Bryan Fagan, I would like to devote some time to discussing insurance and why it is essential in the context of a Texas divorce case. When your finances are pushed to their limits (as they may be in a divorce), you need to have a game plan in place that can ensure that you are not putting yourself in the hole from a dollars and cents perspective. Having the proper amount of insurance is an excellent way to see that you are in an advantageous position in this area of your life.
Insurance is typically overlooked in divorce cases- but it shouldn't be
Insurance is not an exciting topic. It is not one that people will stop what they are doing to talk about or spend all night reading about on the internet. We may have a general understanding of how a particular type of insurance works and what purpose it serves, but it's not as if anyone is all that focused on the ins and outs of insurance daily. I'm not here to argue that any of these thoughts are incorrect, but I am here to tell you that you need to at least give some idea to the role of insurance in your life and that of your family.
When a divorce begins, you will find that your thoughts are spread about as thin as they've ever been at any other point in your life. During the divorce, you will negotiate with your spouse on issues from your children to your family home, your retirement savings, other property, and everything in between.
Your entire life becomes part of a series of negotiations where you and your spouse will be going back and forth on how to divide up the time with your children and the assets/debts in your community estate. In this way, your case will be like every other divorce. It's what personal circumstances you find yourself in that will set your case apart from your neighbor's divorce.
The topic of insurance is not at the forefront of this discussion. We do not overthink insurance until our home is flooded or a medical bill needs to be paid. Until we need it and our backs are against the wall, it is not common that insurance is ever at the top of anyone's mind. Unfortunately, not having enough insurance for yourself, your spouse, or your child can lead to significant financial problems. Ask anyone who chose not to pay for health insurance what has happened in their lives after a large hospital bill has gone unpaid.
While I would hesitate to say that divorce is ever a good thing, on the whole, it can be a good thing in that the case should cause you to take stock of different areas of your life. Insurance is one of those areas. Do you have the proper levels of insurance for yourself, your family, and your property? It should become evident to you pretty quickly as you begin to sift through the different financial issues that become relevant in your case if you don't.
Let's walk through those different areas of insurance that are likely to be relevant to your case. If you have not considered all of these areas (or any of them), then I suggest you hang tight and spend a little time going through them today.
In most divorce cases, a temporary order will go into effect reasonably early in the process that bars either you or your spouse from making any changes to your health insurance plan. For instance, if you are worried that your spouse will remove your name from the health insurance policy through his employer, you do not have to be too concerned with this occurring. If that does happen, there will be significant consequences for his having done so.
Typically, spouses do not remain on the same health insurance plan after the divorce. While you should not be altering or removing names from your policy during the divorce, you should be thinking about what you will want to do after the divorce as far as insurance is concerned. Will you be providing health insurance for your children? Can you afford to do so? Begin to price plans available to you both on the open market, government market, and through your employer. That way, you can come ready to negotiate based on those costs when you and your spouse attend mediation.
Your final divorce decree needs to be specific, concise, and clear as to what burden is placed on you and your spouse when it comes to providing insurance benefits for health care. The last thing that anyone wants is a divorce decree that is vague or unclear. That decree will not be enforceable by a judge in the future. This means that all your work negotiating for the terms included in the decree went for naught. A divorce decree is a contract between you and your ex-spouse, and you want to be able to take him back to court if he breaks the terms of the agreement.
If you are the spouse who carries insurance for your children, you will probably continue to do so after the divorce concludes. You would then receive money from your ex-spouse to compensate you for the costs of covering your child through whatever health insurance plan is in place. If you do not have health insurance available to you, you will need to find out more about putting your child on Medicaid. Your ex-spouse would pay back the state of Texas for the money spent insuring your children in that case.
If a health insurance plan currently covers you through your spouse's employer, you are likely thinking about what you will do after your divorce. For a certain period after your divorce, you will be eligible to be placed on COBRA benefits, allowing you to continue being covered by that group health insurance. Otherwise, your benefits will end at the time of your divorce. Your ex-spouse would be within their rights to have your name removed from the persons covered under your policy at that time.
To take advantage of these COBRA benefits, you should talk to your attorney as your case begins to wind down. You will have to first qualify for coverage and then contact the employer within 60 days of your divorce being granted. Depending on the terms of your divorce decree, either you or your ex-spouse would be responsible for paying these payments. Typically COBRA is much more expensive than the insurance you had been paying for.
Another option you could choose to take advantage of if you are about to lose your health insurance due to a divorce is looking for a plan through the Affordable Care Act. Through the Affordable Care Act, you have the option to seek insurance that is available through the exchange in Texas. This gives you more options to choose from than only to have your ex-spouse's employer provide insurance through COBRA.
What happens to life insurance in a Texas divorce?
Do you have a life insurance policy out on yourself? If you have anyone in your life who is dependent upon your income, it is also a good idea to have life insurance. If something were to happen to you, the proceeds from that life insurance policy could be invested, and the income generated from the principal could go a long way towards replacing your income. Ten to twelve times your monthly payment is about what you need. For the price of a pizza per month, you could provide your family with some solid financial security should the worst happen to you. Ok, I'll step down off my soapbox and get back to the discussion at hand.
If you have life insurance set up at the time of your divorce, then you need to check and see who is listed as the beneficiary under that policy. You should also check the policy payout. It may be that you bought life insurance many years ago, and the amount of insurance you have now is no longer sufficient compared to your assets and income. You may need to contact the insurance company and see if they can tack some money onto your current level of benefits, or you may need to purchase a supplemental policy.
Before you go and do any of these steps, I would recommend that you check with your attorney first to make sure that you are in the clear to do so. Some temporary orders will bar you from changing your life insurance policy until the end of a case. You will often be required to purchase life insurance if you do not have any to make sure there is the income available to an ex-spouse to whom you pay child support. Also, if you have a special needs child, the amount of life insurance you take out may need to be higher than the 10-12 times your income number I mentioned a moment ago.
More on insurance-related issues will be contained in tomorrow's blog post.
If you have any questions about the material that we wrote about today, please do not hesitate to contact the Law Office of Bryan Fagan. Our licensed family law attorneys are ready and willing to meet with you six days a week in a free-of-charge consultation. These consultations are an excellent opportunity to ask questions and receive direct feedback about your particular circumstances. Our attorneys work on behalf of people just like you in all of the family courts of southeast Texas and do so with a great deal of pride.