There are three different contexts where the subject of life insurance may arise in matrimonial actions. First, there may be a pre-existing policy at dissolution of a marriage and issues arise as to whether such policy is a marital asset subject to distribution. Second, a life insurance policy may be a guarantee of spousal and/or child support obligations. The obligation of one spouse for the support of the other and their children can continue even after the death of the obligor spouse. In order to provide for the dependents' needs, a court may order, or one may be desired by the payor to protect the remaining assets of his or her estate, a life insurance policy naming the dependents as beneficiaries, Third, disputes may arise subsequent to the death of the insured ex-spouse. The surviving ex-spouse may claim the proceeds of the policy, a non-spouse may claim entitlement to such proceeds by virtue of having been named a beneficiary, or the widow or widower of the deceased may claim an interest in the proceeds on the ground that premiums were paid from community or marital property.
A Policy as an Asset for Distribution
When a life insurance policy is discovered among the assets of a party to a matrimonial action, the present value of that policy must be determined so that it may be included in the marital asset distribution scheme. This will depend upon whether it is a "whole-life" policy or a "term" life policy. A whole-life policy has a stated cash value, can be used as collateral for a loan, and, once paid for in full, has no expiration date. A whole-life insurance policy has an easily determined value and should, itself, be included as an asset for distribution. Term life insurance is insurance written for a fixed or specified term. Term life insurance has no cash value and coverage ceases at the end of the period for which it is written, without any return of the premiums. The one element of the policy that may remain at the end of a term is the ability of the insured to renew the insurance simply by making a premium payment, without proof of current medical eligibility. It is generally held that a term life insurance policy, without a cash-in value, is not property.
Ordering the Continued Payment of Premiums
In cases where they have decided that a life insurance policy was subject to distribution as a marital asset, some courts have required a spouse to continue to pay the premiums on the policy. Other courts have held that they hold no authority to require a spouse to maintain a life insurance policy.
Designation as Beneficiary
Neither a separation agreement nor a divorce has an automatic effect on the designation of a beneficiary in a life insurance policy. Absent specific instructions to the contrary, the designation of beneficiary in the insurance policy will usually govern who is to receive the proceeds. Even subsequent to a property settlement agreement which purports to include all of the parties' property rights, but which does not specifically mention a life insurance policy that names one spouse as beneficiary of the other, the beneficiary designation remains unaffected, and the ex-spouse may be entitled to the proceeds.
Life Insurance as Guarantee of Support
A life insurance policy that is used to provide security for spousal or child support payments extends the period such payments are to be made to a time past the death of the obligor spouse. The general rule is that regular payments of maintenance granted in a divorce proceeding or a separation decree end when the supported party remarries or either party dies, unless the decree provides otherwise. However, maintenance fixed in a divorce decree can be for any length of time the court deems necessary. Factors which may properly be considered include the length of the marriage, the ages of the parties, and the ability of the dependent spouse to find self-supporting employment. Some states set forth the material factors by statute. The duty to provide child support usually ends when the child reaches majority or is otherwise emancipated. Mental or physical disability might require a support order to continue longer.
Court-Ordered Life Insurance
Many state courts have held that, in the absence of statutory authority or an agreement between the parties, they have no inherent power to require a spouse to purchase and maintain life insurance for the benefit of the other spouse and/or children of the marriage. Even when a court finds it has no authority to order an obligor spouse to pay insurance premiums for the benefit of the other spouse, it may find the authority to order, as part of the child support provisions, continued payment of premiums on an existing policy, if the child is named as beneficiary. Other courts have had no difficulty finding authority to order insurance coverage for the benefit of minor children of the marriage.
When a child who is capable of supporting himself or herself reaches majority, the ex-spouse's obligation for support under a decree or agreement generally ceases, as it would have had the parents remained married. Thus it has been held that the court does not have the right to order insurance coverage after a child's majority, even where it has statutory authority generally to order maintenance of insurance. Some states have statutes that expressly authorize their courts to address the question of insurance coverage.
If it is the intention of the parties to name one spouse as the beneficiary of a life insurance policy for the purpose of guaranteeing support payments, care must be taken to differentiate this from making the policy part of the property distribution. A dependent spouse who is no longer eligible to receive support payments may still be entitled to remain the named beneficiary of a life insurance policy maintained by the ex-spouse on his or her own life, and will thus be entitled to the proceeds upon the death of the payor. Conversely, the obligor's estate might continue to be obligated to continue making support payments, even after an insurance policy pay-out, if it is found that the naming of the ex-spouse as a beneficiary was not specifically linked to the support payments. Thus, it may be to the advantage of an obligor spouse to provide insurance coverage specifically designated to cover support payments.
Distribution of Benefits of Policy on Life of Obligor Spouse
The presumption in the distribution of benefits under a life insurance policy lies in the designation of a named beneficiary. However, a clear and enforceable agreement that requires one spouse to maintain a policy naming the other spouse or children of the marriage as beneficiaries will be enforced. Such an agreement will be enforced even against third parties that have been named as beneficiary and taken the proceeds of a policy without prior notice of the agreement and in good faith.
Disposition of Increased Value of Insurance
When the insured has changed the beneficiary designation in violation of an agreement to name an ex-spouse or the children of the marriage as beneficiaries, it has been held that the proceeds may be awarded to such spouse and children only up to the amount that was contemplated at the time of the agreement. In other cases, the courts have held that even the increased value of the insurance will be returned to the beneficiaries that were named in the matrimonial decree.
Effect of Subsequent Marriage of Obligor
Even though the policy may have been paid for out of marital assets that were accumulated in a subsequent marriage, the subsequent spouse generally has no claim against the beneficiary of a life insurance policy named in a marital decree. In community property jurisdictions, the subsequent spouse may have a claim against the proceeds of a life insurance policy where community property was used to make premium payments.
Copyright 2007 LexisNexis, a division of Reed Elsevier Inc.