If so, it makes sense to maintain the policy with her as beneficiary (Personally, I'd make her make half the payments though) to protect the asset.
If you switch it to the kids and something happens to you and they inherit, they are required to exhaust a far larger % of their assets before becoming eligible for any federal financial aid. I have a friend from HS whose father died unexpectedly and left a LI policy for $250K that was meant to insure that Mike could afford to set up a life, buy a home, etc. Because he died (at age 53 actually. Esophageal stricture rupture) the summer before Mike's freshman year, Mike was compelled to take unsubsidized loans and the private college that had been planning on giving him $30K/year in FA instead took $225K of the LI in tuition over 4 years and gave him nothing in FA. If Mike's dad had made the policy out to Mike's mom instead or to a trust that paid out on a 25th birthday after covering approved life expenses like college, Mike would have been left with about $100K and would have received some FA.
Really, regardless of circumstance, if you're planning to continue to co-mingle long-term and retirement financial assets, you jointly need to sit down with a financial advisor to discuss these issues. Particularly if the assets are substantial (the LI policy alone qualifies as substantial), you may benefit from discussing a variety of vehicles to ease inheritance and taxation issues. Because you're no longer married, if you died tomorrow and she were your inheritor, there would be likely financial and logistical consequences including but not limited to probate and outstanding debts that can be smoothed with a bit of advance planning.
My blanket advice to anybody regarding end-of-life planning is that they need to meet with a lawyer regarding a will (doing it cheap with a DIY kit or a LegalZoom is a bad idea for most everybody.) and an FA regarding any inheritance and estate-taxation issues. In your case, I'd emphasize it repeatedly. Yes, both cost money but what they will save you in money to say nothing of ease-of-mind pays for it.
*takes off banker/financial-advisor hat*
(Standard Disclaimer: I am no longer a licensed banker, nothing previous should be construed as financial advice as opposed to friendly advice. Meet with a licensed financial professional.)
Edit: I know. Nobody wants to do it and FAs are crooks, right? Do you have a bank or Credit Union you've been with, like and trust? Go in and talk to them, they either have an FA on staff or can refer you to someone they work with who isn't shady or a crook. The same is true of many unions, whatever your circumstance...you probably already have a relationship with an entity that can assist with these issues.
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