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The Divorce Encyclopedia
Life Insurance

Term Definition Life Insurance - another asset to divide.
Application in Divorce In a divorce, life insurance presents "many and varied" issues since it is at one time property subject to distribution and also a way of protecting the financial interests of former spouse and minor children.

Life insurance in force at the time of classification is generally treated like all other property: to the extent that marital funds were used for its purchase, it is marital; the extent that separate funds were used, it is separate.

Life insurance is generally valued at its cash surrender value, not its death benefit (or "face") amount. Thus, term life insurance -- the type generally part of an employee benefit package -- has no property value for divorce purposes since it has no cash surrender value.

In general, in the distribution of assets, the owning spouse is awarded the policy and the nonowning spouse is given property as an offset.

In general, courts hold that a change in beneficiary during a divorce is not a transfer of property. (A number of states restrain a spouse from transferring property during a divorce, and courts in all jurisdictions have equitable power to issue an injunction prohibiting transfer.)

In general, a divorce does not automatically "defeat a spouse’s rights as a designated beneficiary in a policy on the other spouse’s life." This means that even after a divorce, the former spouse who is the designated beneficiary retains the rights to the payment. Therefore, the owner must change the beneficiary. (Some states have divestiture statutes that terminate the status of a spouse by the entry of a divorce.)

Courts may require that a spouse protect his or her former spouse by maintaining life insurance for the former partner’s benefit. This consideration may be predicated on the alimony award, or based on the health of payor spouse, and the ability of the payor spouse to do it.

In a similar fashion, most courts have asserted their authority to require the parent paying support (who is usually the father) to maintain life insurance for the benefit of the minor children of the marriage.

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