It’s the time of year when people start setting their New Year’s resolutions, and making sure that they have accomplished all of the housekeeping goals they intended. Many people’s to-do lists include obtaining insurance on themselves or on their spouse. 

What will happen to life insurance upon divorce?

In both Maryland and DC, you and your spouse can come up with your own agreement about what happens to your life insurance policies upon divorce. However, if you and your spouse do not agree about what will happen to your life insurance policies upon divorce, then you will each keep the life insurance policies you own by title. The Court will generally not change title to life insurance policies. The Court also cannot require one spouse to maintain life insurance for the benefit of the other. However, if one of you have a life insurance policy that has a cash surrender value, the Court will consider the cash value in the equitable distribution of property. 

How do you feel about the Court not providing life insurance in divorce?

It is common that a person owns the life insurance policy on his or her own life.  So, some like the idea that they will still own the life insurance policy on their own life upon divorce. They would not feel comfortable with their ex-spouse owning life insurance on their life. Others feel differently.

It’s very common for at least one spouse to want to be the beneficiary of life insurance on his or her soon-to-be-ex in a divorce. This is especially common when that spouse receives support, such as alimony or child support, from their ex, or relies on their ex to provide care or financial support for their children.  In general, this financial support will end in the event the ex dies, but being the beneficiary of life insurance on the ex’s life may serve as a form of financial comfort and security.

How can I set myself up so that I will be the beneficiary of life insurance on my spouse’s life in the event that we divorce?

While the Court cannot order one spouse to obtain or maintain life insurance for the benefit of the other in divorce, below are three ways one spouse can still get life insurance on their ex. 

1. You can negotiate and enter into a binding and enforceable agreement regarding life insurance. This agreement may require one spouse to maintain an existing life insurance policy or obtain and maintain a new policy on his or her life for the benefit of the other, or it may require one spouse to make himself or herself and his or her medical information available so that the other spouse may apply to purchase life insurance on their life. The risk of leaving the issue of life insurance to negotiate in divorce is that it requires mutual agreement, and even if both parties agree, there are many intricacies and options to negotiate to ensure both parties’ interests are protected (e.g. who will pay the premiums, what type of policy, how long will it be for, who are the beneficiaries and contingent beneficiaries, can it be sold, how will there be accountability, etc). 
   
2. You can negotiate what will happen to life insurance in a pre or postnuptial agreement.  The risk is that again this requires mutual agreement, but there is a lot of benefit to negotiating this at a different stage in your marital relationship and not during the divorce process.
   
3. You can become the owner of a life insurance policy on your spouse now.  While it is common for each person to own a life insurance policy on their own life, there is no reason you cannot own a life insurance policy on your spouse’s life, and that your spouse can own a policy on your life.  If this is what you choose to do, then in the event of a divorce, because the Court cannot change title to life insurance policies, you will still own the policy on your spouse’s life, and your spouse will still own the policy on your life. Keep in mind that if this is how you choose to set up your life insurance the owner of the policy is responsible for making the premium payments, but it also gives the owner control to make sure that the policy is current.

If you want to make sure that you have life insurance on your spouse in the event of divorce, you should act now and not leave it to negotiating in a divorce.

To learn what you need to consider when negotiating life insurance in a divorce, check out “Options to Maintain Life Insurance in Divorce.“

For more information, contact Erin at 301-347-1261 or elkopelman@lerchearly.com.