In divorce cases, life insurance comes up as a legal issue in several ways. The most important issue to understand is there are two (2) types of life insurance. The first is “term” life insurance. With “term” life insurance, the “term” is a term of years. A “term” life insurance policy may range from 5 to 20 (or potentially a shorter or longer term) years. In exchange for payment of the monthly premium, a spouse or ex-spouse is covered until the term expires. Ordinarily, there is no ability to extend the term policy and it does not accrue any cash value. If the insured does not pass in the “term,” they pay no amount out to the beneficiary. With whole life, the policy lasts for the life of the person insured. These types of policies build up cash value and, if the premium is timely paid, the life insurance will pay the face value of any amount upon the death of the insured.1 With that distinction made, this blog focuses on life insurance and how it comes into play in some divorce cases.
In marriages where there are children, it is common to require one or both parents to maintain term life insurance for the benefit of the minor children. The reason for this is if one parent dies, there is no ability to collect child support from that parent. So, if the child is an infant, it would be common to obtain a term life insurance policy for 20 years. Child support generally stops around age 18. The method to determine how much life insurance to obtain is simple. Multiply the number of weeks the child will be a minor by the weekly amount of child support to be paid. With this dollar figure, the total amount of child support to be paid dictates the amount of life insurance to obtain. It is critical to maintain provisions in the order for life insurance to ensure support that the other parent knows the premiums are timely paid.
Another way whole life insurance comes into play in a divorce is where it has cash value. In this case, a policy is worth X dollars, and this increases incrementally over time. If the policy has been existence for a significant amount of time, it may have a significant cash value if it were to be cashed in. Under Indiana law, any asset or liability that was brought in the marriage, acquired during the marriage up to the date of filing, is marital asset. Indiana law presumes an equal division of life insurance is equitable.2 Although a court is likely to award the policy to the owner (the insured typically), skilled legal counsel would ordinarily argue to offset this so that the other spouse gets some asset to reflect one-half of this value of the whole life policy’s worth to reflect an equal division of the marital asset.
A whole life insurance policy may be owned by and paid out to someone other than the insured. For instance, a wife may own a life insurance policy on her husband. Just because the marriage is being dissolved does not mean she cannot remain the owner. The divorce court cannot alter the terms of the policy as it is a contract; and while the insured spouse (about to be ex-spouse) may not like it, this can and will continue. That said, the value of this whole life policy would have to be accounted for by a trial court as this is a marital asset.
In summary, whole life insurance is a marital asset subject to division by the court. Term life insurance may be obtained to insure child support. These are a few of the considerations about life insurance in a divorce case. Skilled legal counsel will assist you to properly understand and address life insurance issues in your divorce case. While this may not be an issue in every case, it is frequently a consideration and must be properly litigated in those cases. This blog was written by attorneys at Dixon & Moseley, P.C. This article is not intended to be legal advice or a solicitation for legal services. It is an advertisement.