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Issue To Remember In Divorce: Beneficiary Designations

Divorce can be overwhelming, making it easy to lose sight of important issues. One issue you should not forget about is the beneficiary designations on your life insurance policies, retirement plans, bank accounts, annuities and other instruments.

Whether you are contemplating divorce, initiated the divorce proceedings or finalized them, it is crucial to be mindful of your beneficiary designations, as well as those of your spouse or ex-spouse.

If you are confident you want a divorce but have not yet filed, you may want to change beneficiary designations on assets such as your life insurance policy. Assets such as 401(k)s and pensions require the written consent of your spouse if you want to make a beneficiary change. Also, if you have a joint financial advisor, take note that he or she may inform your spouse if you change beneficiary designations.

If you are in the divorce process, your beneficiary designations should be frozen and you may already be discussing this issue. If you are in the property division process and have not brought beneficiary designations into the discussion, you need to. Assets - even contingent ones, like life insurance - are crucial aspects of your divorce.

Even when your divorce is finalized, you cannot forget about beneficiary designations. In divorce, you factored in your assets with beneficiary designations - or you should have - and may have reached an agreement with your ex-spouse that requires his or her follow-through.

A common example is when a divorce stipulation calls for your spouse to carry an active life insurance policy naming you as the beneficiary. If your spouse allows the policy to lapse or names someone else as a beneficiary, it can cost you a fortune should your ex-spouse die. At a minimum, it would require a stressful and expensive legal battle.

Make sure your divorce stipulation calls for your ex-spouse to routinely disclose that his or her policy is valid and lists you - or another agreed-upon beneficiary like your child - as the beneficiary.

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