Insurance Pitfalls in Divorce: What Can Go Wrong (and How to Avoid It)

Man and woman sitting apart with a piggy bank between them, symbolizing financial division and insurance or asset disputes during divorce

Divorce is already complex but when real estate and insurance claims are involved, things can quickly become even more complicated.

If a client mentions a recent insurance claim on their property (especially within the last several years), it’s worth paying close attention. We’ve seen a growing number of transactions delayed or even derailed due to how insurance proceeds were handled during a divorce.

Here are two common pitfalls to watch for, along with practical ways to avoid them.

1. Insurance Claims Filed… But Repairs Never Completed

The Scenario

A divorcing couple files an insurance claim after water damage destroys their flooring. They receive the payout but due to financial concerns and uncertainty over who will ultimately keep the home, they cash the check and delay repairs.

When it’s time to sell, the missing or damaged flooring becomes a serious issue:

Buyers can’t secure financing
The home shows poorly
The overall value drops

Why It Matters

Lenders typically require homes to be in livable condition. Unfinished repairs tied to a prior insurance claim can prevent a sale entirely.

Practice Tip

If there’s any indication of an insurance claim:

Include clear language in temporary orders or settlement agreements
Require that all insurance proceeds be used strictly for repairs
Add documentation or verification requirements to ensure compliance

This protects the property’s value and prevents costly delays later.

2. Who Gets the Insurance Money?

The Scenario

After storm damage, one spouse files an insurance claim for a new roof. The insurance company issues a check payable to both parties.

But here’s where things stall:

One spouse receives the check
The parties can’t agree on what to do with it
The funds sit untouched for months

Meanwhile:

The home is listed but doesn’t sell
Buyers can’t secure insurance due to the open claim

Why It Matters

An unresolved insurance claim can make a property uninsurable effectively blocking any potential sale.

Practice Tip

Settlement agreements should clearly define:

Who is responsible for endorsing checks
How proceeds will be distributed
Timelines for completing repairs

Clarity upfront prevents disputes and keeps transactions moving.

Why This Matters More Than You Think

Insurance-related issues in divorce don’t just create tension between parties they directly impact:

Marketability of the home
Buyer financing and insurability
Timeline to close
Final sale price

Addressing these details early can mean the difference between a smooth transaction and months of unnecessary delays.

How We Help Navigate These Situations

At Greenwich Bay Brokers, we understand the added complexity that comes with divorce-related real estate. As a Certified Divorce Real Estate Expert (CDRE®), we work closely with attorneys and clients to: