Your divorcing clients may focus their efforts on reassessing key arrangements, such as dividing their assets, updating their wills, and agreeing on their childcare commitments.

While all of this is undoubtedly important, they need to ensure they don’t overlook other, less pressing concerns that may emerge further down the line, such as their life insurance policies.

Many clients assume that once a marriage ends, their shared protection policies do as well. However, existing life insurance policies may continue to operate exactly as they did during the marriage unless the couple take action.

If you are helping divorcing clients, it’s important to alert them to this fact and help them to unpick any complex arrangements, such as joint life insurance held in trust. A financial planner can then work with the clients to find alternative solutions that better suit their new circumstances.

By working together, solicitors and financial planners can help ensure both the legal arrangements and the protection strategy remain aligned after divorce.

Read on to find out why your clients need to review their life insurance policies after divorce.

Divorce does not automatically cancel or amend a life insurance policy

If your client has finalised their divorce but still has an existing life insurance policy, their former spouse may still receive the policy proceeds if they are a beneficiary. They might also retain control of a life insurance trust if the policy has been written into trust.

Policies written in trust may require particular attention, as clients may need to review the wording of the trust, the trustees, and their letter of wishes, if they have one.

Joint policies protecting a mortgage or other shared liabilities may also need reviewing, as the original purpose of the cover may no longer exist following the financial settlement.

Without careful consideration and reassessment, your client’s wishes may not be met when the policy pays out. For example, they might believe that their children will receive the full payout, but their ex-spouse could continue acting as a trustee and have an ongoing role in administering the proceeds. This can lead to familial issues, legal challenges, or financial hardship for some beneficiaries.

Common problems include:

• An ex-spouse continuing to act as trustee despite no longer being the most appropriate person for the role.
• A new partner not being protected and receiving nothing from the payout.
• New children or dependants not being included because the trust or beneficiary arrangements were never updated.
• Child maintenance arrangements not being covered by the policy.

So, it’s important for your clients to review all their life insurance arrangements when they divorce to ensure they remain up to date and in line with their wishes.

Solicitors and financial planners can work together to ensure clients have appropriate protection in place

Solicitors can help clients identify where protection arrangements should be reviewed as part of the wider settlement, and financial planners can help explore their options.

If you are working with divorcing clients, during the proceedings, it’s a good idea to ensure they take the following steps.

• Identify existing policies – Clients should gather any details of their policies, determine who owns them, and who is set to receive the payout.
• Review trust arrangements – If the policy is written in trust, clients should review the trustees, beneficiaries, and any letters of wishes.
• Revisit their estate plan – Clients should also review their wills, pension nominations, Lasting Powers of Attorney, and other Inheritance Tax mitigation strategies.

As a solicitor, you can then advise them on the best next steps to take to help ensure they remain protected.

Clients will likely need to explore new policy options separate from their ex-partner. This is where financial planning can be key.

A financial planner can work with the client to help them find new solutions and strategies for their life insurance cover and wider estate planning that fits with their new circumstances.

They can advise on whether existing cover remains appropriate, recommend new policies where necessary, and help ensure the overall arrangements remain as efficient as possible. They can assess whether the client’s existing level and type of protection remain appropriate before recommending any changes.

A financial planner can also help clients review any other protection policies, such as critical illness cover, to ensure they remain suitable. They can then refer the client back to the solicitor to ensure all the necessary legal documentation is processed correctly.

Get in touch

To find out more about how we can work together to support our mutual clients through the divorce process, get in touch.

Email info@blueskyifas.co.uk or call us on 01189 876655.

Please note

This article is for general information only and does not constitute advice. The information is aimed at individuals only.

All information is correct at the time of writing and is subject to change in the future.

Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

The Financial Conduct Authority does not regulate estate planning, trusts, Lasting Powers of Attorney, or will writing.