It is relatively easy to call up your insurer and request the appropriate paperwork to change the beneficiary on your life insurance policy. However, one of the key aspects of this change is deciding on who will become your new beneficiary. In most states, you can designate any person or entity to be the beneficiary, but during or after a divorce, your choices could be somewhat limited.
If, for instance, the court has ordered that you must continue an existing policy with your former spouse as the beneficiary, then you are not legally entitled to change it. In the case that no such constraints exist, your choice usually comes down to your children, your estate, or your ex-spouse.
Designating your children as the beneficiaries may be your best course of action, but doing so can be very complicated if they are minors. On the other hand, you will probably not want to leave your spouse as the beneficiary unless you need to protect alimony or child support payments. Designating your estate as beneficiary will tie up the insurance proceeds in probate.
A common course of action that allows you to circumvent all of these issues is to create a trust for your children and to name the trust as the beneficiary. That way, you can make your kids the beneficiaries even if they are still minors. Furthermore, you can also have control over the disbursement timeline of the funds by stipulating your wishes upon creation of the trust.
The bottom line is, no matter who your beneficiary is, do not forget to update all of these important documents after divorce. The process can be so emotionally, physically and financially draining that many people forget there are critically important documents such as insurance policies, wills, and powers of attorney that need to be updated in order to protect their rights to the fullest extent.
