When a judge rules that divorcing spouses must split cash and cash equivalents, not all assets may be eligible for the other spouse to receive. A spouse may not receive benefits from a permanent term life insurance policy. Splitting cash or property is part of the assist division process. For instance, spouses decide who receives the car or house. They can also decide to split property. This question, about splitting a life insurance policy, arose when a divorced spouse question why her ex-husband had the right to keep his life insurance policy when the judge ordered them to split the cash and cash equivalents.
During the divorce proceedings, her ex-husband claimed that the term life insurance policy had no cash value. In most cases, he is correct. The policy typically only has cash value when it’s enforced. Thus, a $100,000 death benefit, which is the cash benefit, will be paid to his beneficiary.
A term life insurance isn’t treated like a whole life insurance, which has cash value. Instead, the original purpose of a term life insurance policy is generally to help care for unforeseen events like caring for children after one spouse dies. If the policy was for this purpose, a spouse may be willing to transfer ownership of the policy and payment premiums to the parent during divorce proceedings.
Asset division is a complicated area of divorce law because there are so many things that can be split between spouses. For instance, there are some assets like a term life insurance that may not be eligible for asset division in a divorce case. It helps individuals in a divorce proceeding to address issues like who receives what assets or agree on splitting it.
Source: Fox Business, “Don“, Jack Hungelmann, May 06, 2013