Life Insurance, Disability Insurance, and Divorce: What You Need to Know

[00:00:04] Welcome to the D Shift Podcast, where we provide inspiration, motivation, and education to help you transition from the challenges of divorce to discover the freedom and ability to live life on your own terms. Are you ready? Let's get this shift started.

[00:00:22] Hello, and welcome to this episode of the D Shift Podcast. I have a returning guest who is such an expert in his field. And Jeff is going to talk to us today about a little bit different than the first interview. The first interview we talked all about, should you keep the home? That is one of his areas of expertise. But today we're going to talk about something that I think is so overlooked in a lot of divorce settlements, and that is the role that insurance can play in the future.

[00:00:51] protecting spousal support and spousal maintenance or alimony, whatever, or child support, I'm sorry, whatever you may be looking at. So I want to do a brief intro for Jeff, and then we're going to, he's, I'm going to let him share more about his expertise. He's a seasoned insurance, real estate, and mortgage and divorce financial professional, and he has over 40 years of combined service. In 2010, Jeff founded Bedrock Divorce Advisors, LLC.

[00:01:21] And he works, where he worked exclusively with women going through financially complicated divorces. And Jeff has recently launched a new project called Hello Monthly Income, where he focuses on providing the right level of insurance, disability and life insurance to protect you during divorce. So Jeff, welcome. Thank you. Thanks for having me, Mardi. Great to see you again.

[00:01:48] Well, you too. And I always say when I love having guests back again, because it, you know, you're already a trusted person, people have already heard you in one area of expertise. And this, this whole area of insurance is just not addressed enough, I don't believe. But before we get into all of that, tell us a little bit about your background, just so people have a good understanding of why, why you were so able to help them, Jeff.

[00:02:15] Well, yeah, as you mentioned, in 2010, I started Bedrock Divorce Advisors, working on every part of the financial aspects of divorce. So whether it's the marital home and alimony and child support, if there's, you know, closely held businesses, if there's stock options, I mean, you name it.

[00:02:35] I've done it. I've worked on over 1000 divorces throughout the US. I've seen obviously 1000 settlement agreements. So I know that back and forth. Although I'm not an attorney, I did attend law school, happy to say I'm a law school dropout.

[00:02:52] So I've written eight books on the financial aspects of divorce. So yeah, I mean, probably, there's probably very little that I haven't seen when it when it comes to divorce, especially complicated cases.

[00:03:09] Yes. And this is the this is the challenge I see. You know, a lot of people assume that, well, if you have a fairly high marital estate or fairly high value marital estate, you know, everybody knows what to do with all the money. And it's really easy to to navigate these because everybody's got lots of money and every whether you've got limited income or whether you've got more disposable income than you can ever burn through in your lifetime.

[00:03:39] It's still going to be a challenge when you're going through divorce, how to fairly and equitably manage that financial situation. Absolutely. And you're right. I mean, if you're, you know, walking away with, you know, 20 million dollars in settlement, you're not going to first of all, you're probably not

[00:03:55] even going to get alimony because it's not going to be needed and you're not going to worry about if something happens to that stream of income from alimony and child support, what situation you're going to be in.

[00:04:09] So I think, you know, for people that are somewhere in the middle where, you know, you have little or no assets and you're not worried and, you know, the other spouse doesn't have enough money to pay alimony or whatever, even child support, because in lower income families, 50 percent of people never even receive the child support that they're entitled to.

[00:04:32] So we're really talking about something in the middle where, you know, there's not tens of millions of dollars, but there are assets and the spouse is able to pay, you know, the alimony and the child support. And that's really what we're concerned about. So, you know, the last time, as you mentioned earlier, you know, we were talking about keeping the marital home.

[00:04:56] OK, so let's say you are keeping the marital home and you're assuming now you've negotiated, you're getting some level of alimony for a certain period of time. You're getting child support, obviously, until the children are emancipated. Depends on the age of the children. So you're having that stream of income and you're thinking, great, I can afford to keep the house. I can pay the mortgage and everything else. Everything's good. I'm all set.

[00:05:24] The divorce settlement agreement is signed, sealed and delivered. Everything's great. A year or two later, your spouse gets hit by a bus and is dead. OK. Everything stops. There's no money. OK. I mean, always alimony stops upon the death of either party. So right then and there it stops. OK, so, yeah, I mean, you might be able to sue the estate for money's due.

[00:05:51] But if there's nothing in it, OK, or not a sufficient amount, you're in trouble. And even, you know, let's take the same horrible bus situation. OK, but the spouse didn't die. But now they're incapacitated. They're paralyzed, whatever they can. Or it could be anything else. They get cancer. They get a heart attack. I mean, there are a myriad of things that could possibly happen over the years.

[00:06:19] What do you do then? OK, if they don't have the income coming in, they're either going to stop paying on their own or only, you know, able to pay reduced payments. Or they'll go back to court and say, you know, I've had a substantial change of circumstances. And the court will probably either lower the amounts due or eliminate it and say it's going to stop until hopefully you get better and can go back to work.

[00:06:47] So life insurance and most people don't think about it and it often falls through the cracks. Life insurance and disability insurance aren't really thought about. OK, it's almost an afterthought. Now, I said before, I've reviewed like a thousand divorce settlement agreements. Many of them do include life insurance, but often it's not enough.

[00:07:12] OK, when I calculate, it's not only the alimony and child support. How about extracurricular activities? How about paying for, you know, private school or future college expenses? I mean, it's a whole thing to really figure out what's the correct amount. And I can tell you, out of those thousand settlement agreements that I've reviewed, I have never, ever seen one that included disability insurance. Yeah.

[00:07:41] And it's crazy because statistically, you're more likely to get injured or sick than you are to die. In fact, I think it's the Social Security Administration that said 25 percent of workers during their working career will end up with a disability, either a sickness or an injury that will keep them out of work for a year or longer.

[00:08:07] So, I mean, it's a very, very real possibility and it's never addressed. You know, maybe there's pushback from the paying spouse. Look, I've got enough expenses. I'm paying alimony, child support. I'm even paying life insurance. I can't afford another penny. And then the attorneys say, oh, OK, yeah, fine. Right. But the reality is, I mean, for your audience, think what would happen if you're depending on that alimony and child support to pay your bills,

[00:08:36] your mortgage, your rent, your groceries, whatever, and it suddenly stops. What kind of situation are you going to be in? Right. Right. So, Jeff, let's talk about this whole idea because you hit a nail on the head that I hear all the time because I do see, like you, I see the life insurance included.

[00:08:58] And to me, it's kind of like an escrow account that if something happens and they're not able to, you know, they do pass away, that the ex-spouse is listed as the beneficiary. And so here's what I see. And I'm playing devil's advocate. I'm putting you in an awkward spot. I very much believe in this.

[00:09:24] And I believe that good parents and good people who have each other's best interests in mind do this voluntarily at some level, even if it's not court ordered. Unfortunately, the few number of bad actors that are out there that will go take out the insurance policy, put one month payment on it, and then they stop paying.

[00:09:44] Is there any way with these insurance policies that you can build in that the spouse, the beneficiary spouse receives some kind of notification every year if the policy is still in effect or not? So there are a couple of things you can do, and I'll tell you what is the absolute best.

[00:10:05] But one, you can make the beneficiary irrevocable, meaning they cannot change you because maybe they get remarried and say, okay, you know, enough with the ex-spouse. You know, I'm putting my new spouse. Okay, if it's irrevocable, they can't do that. However, they can stop paying and it gets canceled.

[00:10:27] The best way with life insurance is for the spouse that's receiving, okay, the alimony and child support. They should be the owner of the policy as well as the beneficiary. The insured is still the paying spouse. You could do that every, just about every life insurance company will do that. A little bit different with disability insurance. We'll talk about that in a moment.

[00:10:54] But yes, I mean, you could have things saying, you know, you have to prove, you know, whether you're paying the premium monthly or quarterly or annually, you know, provide proof of payment. And you could request, you know, the insurance company to give you notice if it's not paid so you have the opportunity to pay. The reality is you're dealing with people, you're dealing with admin people, it falls through the cracks, life happens.

[00:11:20] You don't, the life insurance policy goes in a drawer, you never think about it. And then all of a sudden you find out there's been a terrible accident, your spouse is dead. And you find out that the policy was canceled two years ago for non-payment. Yeah, yeah, yeah. So you need to own it. You mentioned something before where you said maybe there's an existing policy and the spouse is the beneficiary. Here's something that most attorneys and most people don't know.

[00:11:49] There are 26 states, okay, more than half the states in the U.S., that will automatically revoke the beneficiary designation upon divorce. Meaning, rationale of the state is that, hey, if you're getting divorced, you really don't want your ex-spouse to be a beneficiary. You want somebody else.

[00:12:14] What you need to do is after the divorce, okay, and, you know, depending is it contested or, you know, amicable, but it should be in the settlement agreement that the owner of the policy, the insured with an existing policy, will re-designate that spouse as ex-spouse. So when it happens post-divorce, then the state and the insurance company knows this was a voluntary decision

[00:12:44] to have the ex-spouse remain as beneficiary. Now, the important thing is there has to be something called insurable interest, okay? If your ex-spouse is not paying alimony or child support and they no longer have any financial obligations to you, there's no insurable interest. It's the same way. You can't take out an insurance policy on me, okay?

[00:13:09] If we were business partners and there was, you know, a financial obligation to each other, then yes, you could. But an ex-spouse, once the divorce is finalized in the eyes of the law, you're a complete stranger. Right. However, if there are financial obligations, alimony, child support, you have an insurable interest. So you have to be re-designated if it's an existing policy.

[00:13:34] Now, my advice is even a new policy you want to get during the divorce negotiations. What happens if you find out that your spouse is uninsurable because their health issues, high blood pressure, you know, whatever is going on may not be. Or the great divorce. What if they're 60 years old and the premiums are just astronomical and it can't be? Then you could figure out during the divorce negotiation, okay, getting life insurance is not possible.

[00:14:03] So maybe they get a larger percentage of assets. They can, instead of paying alimony, they could buy a single premium immediate annuity, which basically means you give an insurance company a lump of money and they pay you monthly for X period of time. Basically, that would be in lieu of alimony. And this way, if they die, it doesn't matter. The annuity is already in place.

[00:14:29] And so, I mean, there are other ways to skin a cat, but you have to do it during the divorce negotiations so you know what the reality is. Afterwards, good luck having an ex-spouse, especially if they're not amicable. Go, the insurance company needs, you know, medical exam. And, of course, you always have to give your consent to have life insurance. And the ex-spouse says, yeah, right, good luck. Yeah, yeah.

[00:14:57] And so this is really eye-opening. So the, I just want to recap this. You said that during the divorce, you can set up the life insurance so that if you're the beneficiary, you can also be the owner of the policy. That gives you access to understanding if the policy is still in effect or if they've stopped making payments. You own the policy.

[00:15:24] So, you know, whether you're getting the premium payments from your ex, maybe as additional alimony, or you decide this is important enough, I'll pay the premiums myself. You're in control. Right. Okay. You're the owner. You know if it's being paid because you're probably paying it. Right. Okay. Okay. That makes, yeah, that makes good sense. Yeah. So, and this is fascinating because there's so many nuances and I see so many.

[00:15:50] I can't tell you how many women who are, who I work with right now. I can think of five clients right now that I'm working with. They're a year post-divores. They can't get any information from the insurance company. They don't know if the, if the policy is even in place. The, you know, their, their attorney now is trying to get the information from the other, from the other party and the other party's just not responding. And there's really nothing that's going to happen.

[00:16:17] If it's not in the settlement agreement, it's like, no, I'm not doing that. You know? And even if it is in the settlement, you got to file a motion. You got to go back to court. You got to compel them to produce and they can drag that out and it can cost you thousands of dollars to find out there's no policy. Exactly. Now the situation's a little bit different with disability insurance.

[00:16:40] Most life insurance companies require the insured to be both the owner and the beneficiary. However, there are a handful. I actually got it in writing from these insurance carriers that by the way are all a rated or better.

[00:16:58] There are a handful that will allow the recipient of alimony child support to be both the owner and the beneficiary of a disability policy. Okay. Okay. Much harder in that case to do it because the vast majority of insurance carriers will not allow it. There are a handful, and when I say a handful, maybe five, that work nationwide, but will do it. And I've got it in writing from them that, yes, they will do it.

[00:17:28] So that's good to know because the same thing applies to disability. And disability insurance is usually more expensive than life insurance, which, you know, for the purposes that we're doing, in most cases, it's term life insurance. So it's the cheapest form. Disability insurance is more expensive, but the chances, as we discussed earlier, the chances of your paying ex-spouse becoming disabled because of injury,

[00:17:57] because of illness is much greater than them dying. Okay. And the important thing is people might have group disability and life insurance. And especially with disability insurance, the group is insufficient to cover what we're trying to cover. One, it's not portable, meaning if they lose their job or they leave, that disappears.

[00:18:25] But the most important thing is the definition of disability. Most group disability insurance, you know, through an employer have that you could work. If you can't work in any profession, then you will get the benefits.

[00:18:44] So if you're a highly paid executive and you become disabled and you try to collect under that, they're going to say, wait a second, you could flip hamburgers and stuffed fries at McDonald's. You're able to work at something, even if it's minimum wage. They won't pay a penny. Private disability insurance, which I strongly recommend, the definition of disability is that you can no longer do your own profession.

[00:19:13] So if you're a surgeon, okay, and you hurt your hands in an accident and you can no longer perform surgery, under a group disability, you know, you could be a customer representative. You could talk on the phone. You don't need your hands. Okay. They won't pay out. But if you have the private that covers your own as a surgeon, they will pay out, even if you could get another job, you know, teaching at medical school. Right. Okay.

[00:19:43] So there's a huge difference and it's really important. And as I said, I just never see disability insurance in a settlement agreement. And that's a shame because it's more likely to happen. Do you think, and I really appreciate that because as somebody who had a spouse, he passed away, but I had a spouse who was fine one day.

[00:20:09] And the next day I had a massive stroke and never walked and barely spoke again at 59 years of age. These things happen more frequently. Absolutely. Yeah. And so let, let me ask you a question. I, and I am so, I have such limited knowledge, so I'm really deferring to you here. Disability insurance can be very cost prohibitive.

[00:20:33] My understanding is depending on your age, depending on like where you work, like if you're a mechanic or if you're a different, different careers can be considered higher risk. So therefore there's a higher premium. Right. If you're in construction, you can fall off a building. Yeah. Yeah. Cause there's much more than if you, if you were an executive sitting in an office every day.

[00:20:54] Um, so just if, if, if the court was to order that the, that the, the payer have this disability insurance, does that typically come off what, whatever the, the spousal maintenance or the child support, not typically child support, but spousal maintenance. It could be, it could be, it could be negotiated, but I will tell you courts will never order it. And in many States, okay.

[00:21:19] The judge can't even order life insurance or a new policy. In some cases they could say with an existing policy that, you know, um, that there's soon to be ex spouse receiving alimony will now be the beneficiary. Okay. Many courts won't even order life insurance. So we're probably talking about a divorce that that's negotiated. That's not in the court.

[00:21:44] Uh, and certainly a more amicable, um, as far as costs, it usually ranges between one to 3% of the insurance annual salary. Okay. Okay. Okay. So with the average being around 2%. So if someone's making a hundred grand a year, you're probably looking at a $2,000, uh, annual premium. So that's not that bad. Well, no, yeah.

[00:22:13] You know, it's again, I think there's always a lot of pushback saying, look, I'm paying enough here. I can't afford another penny. I've got the alimony. I got the child support. You know, I, I, I, I've got to pay rent. I've got, you know, all these other expenses.

[00:22:28] The last thing I need now is, you know, I'm happy to do the life insurance, but there's no, you know, I think it's pushback, but I think there needs to be additional pushback because, you know, your case is a perfect situation. I mean, you, you just don't know. I always tell people, look, I've been paying, you know, home insurance for decades. Okay. I've spent tens of thousands of dollars, even more. My house has never burnt down. Okay.

[00:22:58] Yeah. Never once has it burnt down, but if it did, how can I afford to rebuild it? And, and that's really what you're doing. You're protecting the unexpected, you know, is it likely that your house is burned down? Probably not. If you use the same argument, well, if it's probably not going to burn down, why are you spending all that money on, on, on homeowners insurance? Right. Right. It's the same thing. No, my spouse is healthy. They run, they go to the gym every day. They're young. Nothing's going to happen.

[00:23:26] Well, this is a waste of money until it's not. Yeah. And that's what, that's what I was thinking, you know, when you're, so if you're going into a mediated settlement and you're going to be asking your spouse to carry life insurance and disability insurance, you know, coming at it as let's work on this. Let's get some quotes. Let's get some quotes. And then let's look at how we can, how we can support each other so that you can do this to protect, to protect.

[00:23:54] And I would see this, especially the disability insurance really as a focus for making sure that at least until your kids are, are able to be successful and out on their own, whether that includes college education or vehicles or whatever, whatever you want to consider.

[00:24:12] But also for women who are in that gray divorce area, because I always tell you them, you know, like you don't have 40 years to catch up with what you're, what you're losing in the divorce. Right. Right. And so having that extra cushion, and again, it's not going to be ongoing forever. It's only going to go as long as the term of the spousal maintenance or the child support goes. Right.

[00:24:36] And that's the point again, because that goes back to the insurable interest and it's true with both the life and the disability. Okay. It can, it has to end once the paying spouse's last obligation has ended. So if it's what the youngest child graduates from high school and they're emancipated, that's it.

[00:24:59] So, you know, whether you get, you know, a 10 year term or 15 year or whatever is dependent on the situation because once they fulfilled all their financial obligations, you, you no longer have an insurable interest in them. Yeah. Okay. You're not entitled to, to, to have any life insurance or disability on them because there's, they don't owe you anything. You, you, you know, now total strangers in the eyes of the law. Right. Right.

[00:25:28] And, and I think this is such a, and we could probably go on for a long time, but we're almost out of time. But I think this is a really good overview. And I think, you know, if people are curious, I know you have a gift that you have offered that people can just email you and get your protecting and creating income. Can you tell us a little bit about what that is all about? Yeah.

[00:25:48] I, I, I wrote a booklet that basically covers all the things and goes, you know, into the nitty gritty about what you need to think about, what you have to understand, what you want to ask for. Um, they could go to my website, hello, monthly income.com. I have blog articles. I have a lot of in-depth stuff on that. And of course they could always contact me, you know, because every case is, is different and every situation is different.

[00:26:18] Um, and you know, if this is something that they want to do, I can help them get the quotes. I mean, everything from just discussing their situation and, and how it might help to really setting everything up and making sure getting the quotes, you know, get actually placing the insurance. And as I said, it's best to do it during the negotiations so that, you know, if it doesn't work, you could figure out something else to cover you.

[00:26:47] Like I said, you know, get additional assets. Do you do an annuity? Um, there are a lot of ways to skin the cat. If you, by the way, if you do get new insurance, life insurance during the negotiations, okay, before you're officially divorced. Okay. Let me shut my ringer off. Sorry.

[00:27:08] Before you were officially divorced, you're still going to have to do the red, redesignation of beneficiary after the divorce, because if you get it there, you're putting it down as spouse because you're still spouse. You still have to change that post divorce. Right.

[00:27:24] And, and I, I'm going to encourage you people listening, definitely email Jeff, and I'll make sure all that information is in show notes, grab his booklet because it gives you a, an overview of this plus all the other, all the other important things to think of. And then if you are considering this, reach out to Jeff, because he's a really easy guy to talk to, as you can tell. And, and that one thing that I think that's really important is understanding. Okay. It's great to say, yes, we need this.

[00:27:54] We need life and we need disability, but then it's like how much. And, you know, just calculation. Yeah. You know, I've heard arbitrary people just go, oh, I don't know, 250,000. And then maybe that's enough and maybe it's not, you know. Well, it depends, you know, and then again, you know, let's say somebody, you know, they're going to cover college. And let's say it's not going to happen for 10 years. Well, you can't use the current cost of college now.

[00:28:20] So you've got to figure out what the future value of that is down the road. So I do all those calculations because, you know, things change from year to year. You have, you know, children that are different ages, right? So, you know, child support is going to end for one child at a different date than the other child. Right. Sometimes with alimony, there's different amounts. You know, it's not always a fixed amount for the same time. Sometimes it's a step down. Yeah. And again, you know, maybe their future costs and all of those things.

[00:28:49] So I actually calculated year by year. And then what I do is what's called the present value to take all of that and see what it's worth today and then figure out the amount that the policy should be. So it's a little complicated. But, yeah, I mean, attorneys don't. Yeah. And definitely, you know, this is something that if you haven't thought about it, this is a good time.

[00:29:14] If you're planning on going into mediation or you want to talk to your attorney about this, it's so much more beneficial. Is that even the right way to say that? Yes, I think it is. But it is. It's better if you go in with numbers from a professional than if you just go in on the fly and try to make evaluations and then find out after you've agreed to something that, no, that's not right at all.

[00:29:39] So if you're in the process or if you're thinking about this or if you just want to plan in advance, even if you're just in the very early stages, it's really never too early to reach out and start figuring out these numbers. Because that way you can set up your mediation proposal. You can set up your strategy for dealing with these kind of things. And if you're in an amicable divorce, you can start looking at it with your spouse, even if you both are willing to work together on these things.

[00:30:07] You know, maybe they already have existing life insurance that's sufficient. Maybe it's not. It depends. You know, if it's term insurance, it has an expiration date. If you got it 15 years ago, the duration might be, you know, too short. So all of that we could figure out. You know, we work with a whole bunch of only A-rated and better insurance carriers. So, you know, just the best of the best.

[00:30:33] And for the disability, as I said, there's only a handful that will allow you to be both the owner and the beneficiary of a disability policy. Jeff, thanks for sharing all this information. And I really appreciate this because this is something that a lot of people, like I've said a couple times, just don't think enough about. So thanks for sharing your wisdom and expertise. Thank you so much for having me. Thanks, Marty. And thank you, everyone, for listening in. I hope you learned something. I know I sure did.

[00:31:03] And looking forward to having you and seeing you at the next D-Shift podcast. Thanks for listening and supporting the D-Shift podcast. If you would like to attend live trainings by our amazing guests and have a chance to ask questions and get answers from our experts, join the D-Shift crew. For more details and to sign up, head on over to www.divorcecoachforwomen and click on the podcast page.