Going through a divorce means rethinking many aspects of your daily life. One area that might not immediately come to mind is your insurance coverage. These policies could require significant attention during and after your divorce. Knowing what these changes mean could help you protect you and your family.
What happens to your health insurance
If you have coverage through your spouse’s employer, divorce will affect your health insurance. Texas courts often issue temporary orders that require both spouses to keep existing coverage in place until the divorce is final, which helps protect you during the process.
Once the divorce is official, you will need new coverage. If your spouse’s employer has 20 or more employees, the Federal Consolidated Omnibus Budget Reconciliation Act (COBRA) allows you to stay on the same plan for up to 36 months at your full cost.
If the employer has fewer than 20 employees, state continuation laws usually limit coverage to nine months. You typically have only 60 days from the divorce decree or notice date to elect this coverage.
Divorce also qualifies as a special enrollment period under the Affordable Care Act, allowing you to purchase coverage through the Health Insurance Marketplace outside of the normal open enrollment window. Depending on your income level, you may qualify for premium tax credits or cost-sharing reductions that make marketplace plans more affordable than COBRA.
How your life insurance might be affected
Divorce impacts your coverage in the following ways:
- Beneficiaries: While Texas law automatically removes ex-spouses from private policies, federal law governs most employer plans and requires you to manually update those beneficiaries to prevent your former spouse from receiving the payout.
- Ownership: Transfers of policies between spouses incident to divorce are generally tax-free under federal law, allowing you to assign ownership without triggering a transfer for value tax penalty.
- Cash Value: The law treats any cash value that builds up during the marriage as community property and the spouses must divide it during the divorce.
When a divorce decree requires you to maintain life insurance for your children’s benefit, consider checking if the policy amount and beneficiary designation comply with the court’s order. Some decrees require you to name the children directly as beneficiaries, while others allow you to name your former spouse as a trustee for the children’s benefit.
What may change with your auto policies
Your living situation after divorce affects how you adjust your auto insurance. If you and your ex-spouse live at different addresses, you will need separate policies since coverage depends on where each vehicle parks. It is important to understand that removing an ex-spouse from a shared policy is not always as simple as making a phone call.
Insurers often require written consent from all named insureds or a final divorce decree before they will approve changes. In many situations, it can be easier for the spouse who moves out to obtain a new policy first.
Teen drivers present a particular consideration for divorcing parents. If your children drive and split time between two homes, insurers may require them to appear on both parents’ policies. Most companies require you to list any regular driver, and a teenager who often drives a parent’s vehicle should be covered under that parent’s policy.