Life insurance policies are relevant to a pending divorce action in several ways that are important to understand. If you or your children are the beneficiaries of your spouse’s policy, you want to ensure that it is maintained and/or understand when it may lapse. Policies with cash value need to be considered as part of the equitable distribution of assets. During the divorce process, your lawyer will seek information about all life insurance policies and advise you of your rights and obligations and any issues that may need to be addressed during negotiations. Some of the key concerns with life insurance policies during divorce include the following:
Disclosure of Life Insurance Policies
You and your spouse are required to disclose all life insurance policies that you have, including those provided through employment or held in a life insurance trust. This information is provided on the Financial Affidavit [link to post on What You Need to Know About Financial Affidavits in Divorce].
Prohibition on Changing Life Insurance
Under the Automatic Orders in Connecticut, neither party is permitted to let a life insurance policy lapse or change beneficiaries of any life insurance during the divorce process. Accordingly, if your spouse refuses to pay policy premiums or removes you as beneficiary, you can file a motion to request remedies from the court, including a request that your spouse be found in contempt.
Term and Whole Life Insurance
Among the information that must be revealed about a life insurance policy is whether it is a term or whole-life policy. Term life insurance has no cash value; so, there is no asset to divide in divorce. However, it is important to know when the term expires and when premiums increase, if at all. This information may be relevant to settlement negotiations or trial, as courts can require a party to maintain life insurance as security for a party’s alimony, child support, and/or college obligations.
Whole-life policies do have a cash value which is subject to equitable distribution in divorce. Typically, the spouse with the policy will give the other spouse assets equivalent to a one-half share of the cash value, though there are other ways to divide the cash value that can be considered.
Life Insurance Trust
Life insurance can be held in trust which can raise some unique issues. Some trusts provide that the other spouse will no longer be a beneficiary if either spouse files for divorce, the parties are no longer living together, or once the divorce is finalized.
Your divorce lawyer must obtain a copy of the trust to review the terms. In many cases, your lawyer will also consult with an estate planning attorney regarding the terms of the trust and how best to provide life insurance coverage post-divorce.
If you are considering divorce and have concerns regarding life insurance, consult an experienced divorce lawyer. Our attorneys regularly deal with life insurance coverage issues and help protect your rights in divorce. Contact us today.