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Dividing Life Insurance and Survivor Benefits

Until the 1992 legislative session, our Virginia Courts did not, apparently, have authority to render awards in the nature of requiring a spouse to keep his or her life insurance in force for the benefit of his or her spouse (and/or children); and/or to order spouses to acquire new life insurance coverage for the benefit of the spouses and/or children.(20) Since "survivor's benefits" are in the nature of life insurance, our Virginia Courts also did not have authority to order such relief (unless a settlement Agreement were involved).

Two new statutory provisions have changed two-thirds of this life insurance picture. That is, (only) with respect to divorce suits filed after July 1, 1992, our Courts now have the authority to order a party to designate his or her spouse as the irrevocable beneficiary of the entirety or a portion of his or her annuity survivor benefit plan -- but not to order the party to maintain an existing policy or to purchase a new life insurance policy for the benefit of his or her spouse. In addition, with respect to child support hearings conducted or at least those emanating from petitions filed after July 1, 1992, our Courts now have authority to order a party to maintain an existing life insurance policy in effect, and to designate his or her children as beneficiaries under a portion or the entirety of the policy -- as long as the party has a statutory duty to pay child support for those children.

It is true that these provisions allow only the most expensive form of life insurance coverage to be required for a spouse, and that the child coverage provision might well encourage recalcitrant parents to cancel existing policies before a Court denies them that opportunity. It should be noted, though, that, since it cannot be questioned that, often, spouses and the children do have "insurable interests" in the continued presence on Earth of the spouse possessed of the life insurance or survivor's benefits (21) -- even prior to this time, often provisions for continuation of (some portions of) life insurance and/or survivor's benefits were included in settlement Agreements. Because of the inability of our Courts to order such relief, though, typically, the attendant costs were in effect "traded" for something else in the process of negotiating the Agreement. The ironic "loopholes" in the new provisions have "ensured" continuation of this practice.

(20) A probably-questionable Spring 1990 decision of the Chief Judge of the Fairfax Circuit Court ruled that a trial court did have authority to order a spouse to keep his current life insurance coverage in effect.

Care should be taken to distinguish "whole life" and other policies with "cash value," however. Subsequent to enactment of the Virginia "equitable distribution" provisions, there never has been any doubt that, if and to the extent that life insurance policies have "cash value" earned during the marital coverture, they were (presumptively) marital property subject to equitable distribution consideration.

(21) E.g., unless otherwise specifically provided in a settlement Agreement, child and spousal support rights terminate upon death, as pension-share rights usually do, by virtue of company or agency or "Plan" provisions, upon death of the pensioner.

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