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Can a Life Insurance Policy Be Split in Divorce?

It is common among married couples in Maryland to take out term life insurance policies that cover one spouse and name the other spouse as beneficiary. There may be many reasons for such a policy. In one case, the couple may want to make sure the children will be provided for if one parent dies suddenly. In another case, a life insurance policy may be intended to give a surviving spouse a way to pay the mortgage on the home with only one income.

In most cases, term life insurance policies pay benefits only if the spouse who is covered under the policy dies during the policy’s term. As long as the covered spouse remains alive, the policy has no cash value. What happens, then, to the policy in the event of a divorce?

When a couple divorces, the marital estate is subject to property division. Under Maryland law, the courts will award an equitable share of the couple’s assets and debts to each party. The assets subject to division include such things as bank accounts, real estate, retirement accounts and the cash value of life insurance policies. If a life insurance policy has no cash value, there is nothing to split between the parties. However, that does not mean the policy has no place in divorce settlement discussions.

In determining how to handle a term life insurance policy that covers one spouse and names the other as beneficiary, consider the reason why the policy was purchased in the first place. Will that reason still exist following divorce? If the covered individual dies unexpectedly, would the surviving former spouse need the proceeds from the policy to support the children? If so, consideration should be given to requesting that ownership of the policy be transferred to the spouse named as beneficiary. That person would have to make all future premium payments but, in exchange, could name himself or herself as the policy beneficiary. A divorce attorney may be able to assist divorcing couples understand their options in the process.

Source: Fox Business, “Don’t I Get Half of My Ex’s Life Insurance Policy?“, Jack Hungelmann, May 06, 2013

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