Divorce is a stressful and extremely exhausting process. Not only are you having to deal with the emotional fallout concerning the termination of your marriage, you’re also having to deal with the equitable distribution of property accumulated during your marriage, and other financial issues related to you and your spouse’s decision to go your separate ways.
One key asset that is often overlooked when divorce proceedings begin is life insurance. Because it’s money that’s not immediately available, you might not give it as much thought as you would other more accessible property such as a house, car or stocks and bonds. However, life insurance is a valuable asset, and one that you and your former spouse should come to an agreement on regarding its continuation and payment.
A recent case in Florida, Kearley v. Kearley summed up the actions divorce courts can take regarding life insurance policies and benefits. The court in Kearley basically held that divorce courts may value, classify and distribute life insurance policies, can regard life insurance policies as a means to handle unpaid obligations such as mutual debt at the time of a spouse’s death, and can also treat the policy as a source of security to help take care of any alimony or child support obligations in the event of an obligor’s untimely demise.
In short, courts can make a spouse keep another spouse on a life insurance policy in order to help meet any child support or alimony obligations in case the other spouse dies, and courts can also require divorcing spouses to purchase life insurance to meet the support needs of their children should one of the spouses meet an unexpected death.
Courts can also set rules regarding cashing in of an existing life insurance policy. For example, a court may order the equitable distribution of proceeds from the cashing in of a life insurance policy between two spouses. Courts may also order that a divorcing spouse deciding to keep a life insurance policy must pay the other spouse the cash value of said policy.
Divorce courts can also order an injunction restraining a spouse from changing the beneficiary on an existing life insurance policy while proceedings are underway. This can prevent a divorcing spouse from circumventing court rules on division of community property by naming someone else as the beneficiary of the policy.
While courts do have the discretion to order that one spouse keep and maintain life insurance for the benefit of the other spouse, this authority may not be exercised capriciously. A court’s decision to order another spouse to keep and maintain life insurance for the benefit of the other spouse must be based on an alimony or child support award to the other spouse, the ill-health of a spouse and the ability of a spouse to obtain life insurance. In fact, some courts have ruled that a spouse’s duty to keep and maintain life insurance for the benefit of the other spouse ends once any alimony or child support obligation terminates.
Of course, if both spouses agree to waive rights regarding their status as a beneficiary of a life insurance policy, the court may grant this request. Oftentimes in divorce, a spouse will agree to this waiver as a bargaining chip to obtain some other benefit in the divorce agreement, such as the retention of a house, car or other property. Divorcing spouses considering this option should carefully weigh the benefit of what they are receiving against the potential loss of security or support should the other spouse die unexpectedly, especially if they have children to maintain and support. The average cost of raising a child from infancy to age 18 is more than $100,000, a difficult proposition without the expected support of the other spouse.
If a spouse is found to have violated a court order regarding a life insurance policy, there are several remedies available. For example, if the spouse is still living, the court may use contempt powers to fine, jail or compel the spouse to comply with the order.
Many times the other spouse doesn’t find out about the offending spouse’s violation unless he or she dies. If this is the case, the other spouse may go to court and file for the creation of a constructive trust, which would pay the spouse the money he or she is owed from other assets owned by the deceased spouse. For example, a husband constantly reassured his former spouse that he was maintaining the $100,000 life insurance policy he was ordered to maintain, but when he died, it was discovered that he had not. The wife filed for a constructive trust which was held against other policies naming his second wife as a beneficiary.
In conclusion, when obtaining a divorce, it is important to consider the value of a life insurance policy as marital property, and work to ensure the equitable distribution of the policy, or the maintenance of a new policy as surety for any alimony or child support obligations.