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The impact of divorce upon life insurance policies

On Behalf of | Mar 28, 2022 | Divorce

During a divorce, issues will come up which you may find confusing. Child custody, spousal support and property division are all complicated topics and you’ll likely have a lot of questions. Life insurance is something you may not initially think of but, when it does come up, it’s important to understand the basics.

Property distribution

Since California is a community property state, all assets acquired during the marriage are owned equally by the divorcing spouses. This applies to life insurance policies – if marital funds are used to purchase or maintain a policy, both spouses have a legal interest in it. How the court deals with a specific policy will depend on the circumstances. Is it a whole or term life insurance policy? Does it have a cash value? These are some of the elements a court will consider.

Who is the beneficiary?

Frequently, when one spouse obtains a life insurance policy, they will name the other spouse as beneficiary to that policy. As part of the divorce, the policy itself may remain with the covered spouse or it may go to the beneficiary spouse. If the beneficiary spouse takes ownership, they will be required to maintain the policy from then on. If the covered spouse retains ownership, and they no longer want their ex-spouse to be the beneficiary, they will need to change the beneficiary following divorce – this is not done automatically.

Court-ordered life insurance

Even if no policy exists, there are circumstances when a court may order one spouse to purchase and maintain life insurance following the divorce. This usually happens in order to secure alimony or child support payments in the future. If the court is concerned that a spouse who is ordered to pay support may fail to provide it down the road – such as due to an illness – the life insurance policy acts as a backup for the support payments.