Divorce is a life-changing event that brings about significant emotional and financial challenges, particularly when it comes to managing assets like real estate. One crucial aspect that often gets overlooked is updating homeowners' insurance policies. Divorcing homeowners may delay updating their insurance until they refinance the marital home mortgage or when only one spouse remains in the marital home until it is sold later. This article explores the importance of timely insurance updates and the critical role of a Certified Divorce Lending Professional (CDLP®) in navigating these complexities.
The Importance of Homeowners' Insurance in Divorce
When divorce occurs, homeowners' insurance should be a priority. Policyholders need to understand how divorce can impact current or future property insurance damage claims. Updating your insurance coverage promptly ensures that all assets are adequately protected.
Directly Related to the Deed
Homeowners' insurance is directly related to the deed of the property. If both spouses' names are on the deed, you cannot simply remove one spouse's name from the insurance policy. For instance, if one spouse is keeping the home, the other will need to sign a quitclaim deed so that the deed can be reissued in the sole owner's name. This action allows the insurance policy to be updated to reflect the current homeowner accurately.
Legal and Financial Implications
Resident Spouse Considerations
Some insurers list the spouse as a named insured even if their name does not appear on the deed. The term "resident spouse" requires the spouse to live in the home to be insured. Changes in relationship status often warrant an update to the insurance policy. Each state has specific insurance rules, so check with your state's insurance department and insurer for unique requirements.
"You" and "Your" Policy Language
Residential policies may provide coverage for married couples, whether or not both spouses are explicitly named on the policy. Standard language might include phrases like, "In this policy, 'you' and 'your' refer to the 'named insured' shown in the Declarations and the spouse if a resident of the same household."
Impact on Insurance Claims
During the Claim Process
Awareness of the requirements for a married couple to bring a claim under the policy is essential. Considerations include compliance with post-loss conditions for proof of loss and the examination under oath requirement. A loss may occur during the divorce process or shortly after, affecting the claim.
After a Divorce is Finalized
If a divorce happens before a loss, issues can arise if the insured party no longer has an insurable interest in the property. For example, in the case of Dorothy and James Morgan, Dorothy's insurance policy was voided after she quitclaimed her interest in the home to her husband as part of their divorce agreement. When the house was destroyed by fire, the insurer denied the claim because Dorothy no longer had an insurable interest.
Avoiding Lapses in Coverage
There can be a window of opportunity for a lapse in coverage during a divorce. For example, if one spouse is awarded the marital home and cannot refinance the mortgage immediately, they may wait to execute a quitclaim deed and update homeowners' insurance. This delay can result in a lack of coverage.
The Role of Divorce Mortgage Planning
Specialized Financial Strategy
Divorce mortgage planning is a specialized financial strategy that addresses the complex considerations associated with real estate and mortgages during a divorce. It involves more than just refinancing or securing a new mortgage post-divorce. It includes allocating mortgage obligations and creating an economic framework to ensure long-term stability for both parties.
Expertise of a Certified Divorce Lending Professional (CDLP®)
A CDLP® is a specialized mortgage professional with additional training in handling the financial aspects of divorce. They assist in assessing the feasibility of keeping or refinancing the family home and offer valuable guidance on mortgage-related matters throughout the divorce process. Their expertise ensures that decisions are made with a clear understanding of their long-term impact, aligning with the overall goal of achieving financial stability post-divorce.
Conclusion
A successful divorce settlement results from effective communication and strategic negotiations. Involving a Certified Divorce Lending Professional (CDLP®) early in the divorce settlement process can help divorcing homeowners set the stage for successful mortgage financing and ensure all insurance and financial aspects are adequately addressed. By doing so, both parties can achieve a more secure and stable financial future.
This is for informational purposes only and does not provide legal or tax advice. You should contact an attorney or tax professional for legal and tax advice. Interest rates and fees are only estimates provided for informational purposes and are subject to market changes. This is not a commitment to lend. Rates change daily – call for current quotations.
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