The Ins and Outs of Life Insurance During Divorce

Life insurance is usually not high on the list of concerns during a divorce. However, it is important to know that under certain circumstances life insurance can be an important asset.

In California, Can Life Insurance be Divided?

California is a community property state, which means that anything earned by the couple is owned equally be each partner. When life insurance is purchased with community money it is possible that the proceeds of the life insurance policy may be community property.

There are two types of life insurance: whole life insurance and term life insurance.

The first type of life insurance is whole life insurance. For whole life insurance, the policy accumulates a “cash value”. The amount of the policy that was purchased with community money is considered to be divisible property in divorce.

The second type of life insurance is term life insurance. Term life insurance is a contract providing only coverage during a specified term and has no cash value. Term life insurance purchased with community money is community property. However, the property in term life insurance is the right to have coverage during the individual term paid for with community money. Because the couple has already received the “benefit” of the policy during the marriage, the policy is not considered to be a divisible asset.

If the partner for whom a term life insurance policy is maintained were to pass away during a term in which any community funds were used to purchase the term policy, a portion of the policy proceeds would be community property and subject to division in a divorce.

Can Life Insurance be Awarded as Child or Spousal Support?

California family law provides broad discretion in matters of spousal and child support. A judge may order a parent to buy an insurance policy with the child or spouse named as the beneficiary.

California law allows life insurance to be awarded for child support because the obligations of the parent extend beyond death. A judge may order a life insurance policy as child support when the judge believes that the ordered parent may have trouble providing for the child.

Life insurance awards for spousal support allows a judge to order a spouse to purchase a policy with the other spouse named as the beneficiary. The judge’s ability to order life insurance as spousal support is directly stated in California Family Code section 4360.

Is There Anything Else to be Aware of?

It is important to remember that a life insurance policy is a separate contract from marriage. The named beneficiary of a life insurance policy does not automatically change following a divorce. The holder of the policy must contact the life insurance provider to request a change of beneficiaries.

Another item to keep in mind is that even if a life insurance policy is not discussed during divorce proceedings, it can be brought before a judge later as an “omitted asset.” The judge may then decide on whether the policy should have been divided or have been included in an award of support.

Determining the rights to life insurance in divorce can be complicated. It is important to understand your rights to a life insurance policy both during and after divorce. If you have questions about your or your partner’s life insurance policy, please contact one of the experienced attorneys at Lonich Patton Ehrlich Policastri.

Please remember that each individual situation is unique, and results discussed in this post are not a guarantee of future results.  While this post may detail general legal issues, it is not legal advice.  Use of this site does not create an attorney-client relationship.