Going through a divorce is already challenging on its own. But when you have kids, the challenges are more significant. It is not only you and your spouse who is affected but your children, too.
Often, divorces with kids face challenges like child support and child custody. If you do not know what these two are, here is a brief explanation.
Child custody pertains to which parent will take physical care/custody of your kids. That is different from child support. Child support deals with a parent who is court ordered to provide financial support for the child/children.
Because this is regulated through the courts, you have to make your child support payments. If you don’t, then your ex-spouse can file liens on your personal property.
But does this include life insurance? So a question many people have is, “Can child support take your life insurance?”
Can Child Support Take Your Life Insurance?
The short answer to that is no. Your life insurance for your beneficiary(ies) is protected from creditors. So your beneficiary’s life insurance payout is safe from your creditors. This includes your ex-spouse collecting child support that you owe.
In most cases, creditors cannot get their hands on life insurance payouts or death benefits. This is because the assets in the payout are meant to protect the beneficiaries financially once the policyholder passes away. If the payout goes to the creditors rather than the beneficiary, it would contradict the purpose of life insurance.
Most states also do not allow creditors to try to collect what the policyholder owes from the beneficiaries of the life insurance policy. That is because the debts of the policyholder and the beneficiary are not the same. So the debt of the policyholder should not pass through to their beneficiaries.
Other financial aspects of a life insurance policy, such as cash values, excess interests, and dividends, are also unclaimable by creditors such as your ex-spouse. In most states, cash value, excess interests, and dividends are not garnished to pay debts like unpaid child support.
An Exception To the Rule
However, there are exceptions to every rule. And this situation is no different. There is a way that child support can take your life insurance payout.
Usually, when you apply for life insurance, you always have a beneficiary. And, if you pass away, your beneficiary will get the life insurance payout you have invested in ever since you took that life insurance policy.
However, it is possible to get a life insurance policy without naming a beneficiary. And if your life insurance policy does not have a named beneficiary, then your life insurance payout will go to your estate.
And in this case, then your creditors can claim the life insurance payout as a way to pay for what you owe.
So let us say that you divorced your spouse, and now you have to pay child support. You took out a life insurance policy but never got around to naming any beneficiaries on that policy.
In this case, if you pass away, then your life insurance payout will go to your estate if you do not have any debts. But if you do have debts then the payout may be used to pay your unpaid debts. This will include child support.
The easy way to avoid this is to make sure you name at least one beneficiary on your policy.
