Protection after divorce

It is not just the partner with direct parental responsibilities who needs to ensure that he or she has adequate insurance, the “other” partner should also ensure that there is cover to replace whatever contribution may be made towards child maintenance – and even in some cases – support for the former spouse.

For the “caring” parent, there should be adequate life insurance to provide an income to support the children until they are realistically able to provide for themselves. This is unlikely to before age 22 in the case of those attending university – often later. But as a single parent, it is also important to make sure that there is an alternative source of income to provide for personal living expenses as well, in the event of incapacity, whether short-term or for longer periods. Insurance can include accident and sickness cover, permanent health insurance and critical illness cover. These variously provide lump sums or an income for a pre-determined period and it is important to take professional advice, because some benefits enjoy tax breaks not available to others.

It is also important, however, for the “other” parent – that is the one without direct caring responsibilities – to carry sufficient insurance that, should they die or become ill, they are able to continue providing the financial support for which they are legally responsible. This could extend to ensure that any “moral” obligation to provide support later in life, as children turn into adults and need different forms of financial support, are also provided for.

One of the major complications is that many people re-marry after divorce and there can then be a second family for which financial responsibility is assumed. This can either be through children “inherited” from a new partner’s previous relationships, or as the result of new children being born within the new partnership.

In order to ensure that everyone is equally and fairly treated, the use of simple trusts will guarantee that those who are intended to benefit will do so, in the event of death. Separate trusts and insurance policies could be arranged for the different “families” or one arrangement to cover everyone – although the latter approach is fraught with complexity and needs to be carefully considered.

And don’t forget, pension benefit need to be taken into account when working out the cash settlement on divorce. This can include offsetting the benefits of each partner, offering in-going maintenance, earmarking part of the fund for the ex-partner, or sharing.

If you require any further information about the services that we provide or would like to review your financial planning position, please contact us

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