Divorce Insurance

• What You Need To Know
• If you can insure yourself against other losses, why not insure yourself against divorce?
• The best way to protect yourself against divorce is to think carefully before getting married.
• Unromantic though it may be, a prenuptial agreement is an essential form of divorce insurance.

"Before you get married, you need to know who you are and know who your spouse is - and know what love means." 

One important part of the financial planning process is conducting a risk assessment. That means checking your insurance coverage to see if it is currently meeting your needs. Do you have enough life insurance if you were to die early? Do you have disability insurance to replace your income if you get sick and can’t work? Do you have auto and home insurance in case your properties are accidentally damaged? If you are married, do you have appropriate divorce insurance?

Divorce insurance. You heard it right. Just when you thought payday lending was the sleaziest way to make a buck, there’s now a company peddling a product called Wedlock, meaning that, for $15.99 per month, you can purchase units of divorce insurance. Each unit will pay a benefit of $1,250 in the event you divorce your spouse. It’s true a sucker is born every minute, but let the kid who was squawking next to you in the nursery trying to stick his pacifier in his ear buy the Wedlock product. You should follow these steps to set up your own divorce insurance program.

Do not enter into marriage blindly

A marriage vow is a solemn pledge. If either the bride or the groom has even a remote connection to a faith tradition, marriage vows are usually made in a place of worship, before God. If you’re looking for a sermon on the morality of upholding those vows, you won’t get it here. If you want a warning on the financial devastation that not keeping those vows can wreak, then you’ve come to the right place.

A divorce between two people with no children and a moderate net worth should be a pretty painless financial event: “Let’s go see a divorce mediator. You go your way and I’ll go mine.” But when kids are thrown into the mix, you’re talking about child support and the cost of setting up two households. If there’s a woman who has been out of the workplace for some time, then she’s going to be looking for a big chunk of her spouse’s savings and earnings during their married years. There could be an acrimonious battle and the process could take some time. If the family was struggling financially before the divorce, then the divorce could very well lead to loads of debt and possibly bankruptcy. So before you get married, you need to know who you are and know who your spouse is -- and know what love means. Your relationship might seem like a fairy tale at first, but before you tie the knot, remember what the great Russian writer Dostoevsky said: “Love in action is a harsh and dreadful thing compared to love in dreams.”

Understand what causes divorce

During the financial collapse of 2008, you may have heard the term “moral hazard.” Moral hazards exist when people with insurance take greater risks than they would without it because they know they are protected. So let’s say you own a home. You have gasoline-soaked rags in your basement and no smoke detectors. Someone points out to you that this could lead to your house being destroyed in a fire. Your response: “It’s OK. I have insurance.” 

Understanding the top causes for divorce is a form of divorce insurance.

Consistent, honest communication regarding money and finances before and during your marriage should be an integral part of your divorce insurance." 

If you were to purchase the Wedlock product, the equivalent moral hazard would be to say, “It’s OK if my marriage doesn’t work out. I can always get divorced.” To avoid the unnecessary expense of divorce insurance and the emotional toll divorce takes on most people, you should understand what the experts have determined are the top causes of divorce. They are: 

•    Getting married young
•    Major cultural or religious differences
•    Negative fighting/communication styles
•    Money differences

Sportscaster Jim Nance was ordered to pay close to $1 million a year in alimony to his ex-wife. “I’ve seen more divorces over a major remodeling project going over budget than affairs,” his lawyer said. Consistent, honest communication regarding money and finances before and during your marriage should be an integral part of your divorce insurance.  

Consider a prenuptial agreement

How about this for divorce insurance? You pay a lawyer a one-time fee before you get married to draw up a prenuptial agreement. A prenuptial agreement is a contract that determines how assets will be distributed in the event of divorce. It’s a small investment in lawyer’s fees up front to prevent the long, drawn-out battle that many divorces turn into.

If you go this route, make sure it’s a valid prenup. Specifically:

•    Hire separate attorneys. If you don’t, your spouse may try to get the prenup thrown out, claiming she never had proper legal representation when the document was drawn up.
•    Make sure you fully disclose your assets at the time the contract is drawn up. Not doing so would be another reason for a prenup to be declared invalid.
•    Make sure the prenup is fair and won’t leave your spouse living below the poverty line. (And make sure it’s drawn up and signed at least one month before your wedding date.)

Establish a secret account

We wrote about this in the past. Maybe you’ve heard of men being sucker-punched by wives who raid the joint bank accounts and take off for another state with the kids. This leaves the husband trying to scrounge up enough money to hire a lawyer to get back at least some of what is rightfully his. If you have this concern, then you may want to set up a secret bank account and start funding it. She won’t be able to get at it since it will be in your name only. This will be your emergency fund if she does take off. It will leave you with money to pay lawyer fees and living expenses.

It’s perfectly legal to do this. It is not legal, however, to try to hide money during your divorce. Most states require both parties to completely disclose all assets and liabilities. Failure to do so is considered perjury. That doesn’t mean it hasn’t been done -- and done successfully. Just understand what the ramifications are if you try it and are caught.

understand the risks

Like other insurable interests, marriage involves some risk. But unlike other things against which we are insured (fire, disability, early death), divorce is an act of the will. You and your spouse choose to separate permanently. You would be better served by following the above tips than by actually purchasing divorce insurance. A final warning: If you do purchase divorce insurance, you may want to keep it a secret from your spouse. How will she feel if she discovers that you have an economic incentive to kick her to the curb?