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Property Division in Divorce: Insurance Benefits

In divorce, a critical issue impacting the treatment of insurance policies is whether the policy benefits are separate property or marital property. State divorce courts have reached varied answers on the question of whether a life insurance policy is separate or marital property. In some states, “whole life” insurance contracts have been held to be marital property and generally have been valued at their cash surrender value. “Term life” policies, on the other hand, which lack a surrender value, have not been considered divisible property. In states in which inheritances or gifts are classified as separate property, insurance proceeds usually are not treated as marital property for purposes of property distribution in divorce. Other courts have ruled that the proceeds of a life insurance policy purchased with community property should be treated as community property in a divorce.

Another important issue relating to insurance policies is whether the insurance benefits should be part of the divorce property settlement or part of continuing support (in which the life insurance policy is used as a guarantee of future support payments). In cases in which the policy has been made part of continuing support, voluntary agreements between divorcing spouses to maintain insurance for that purpose have been implemented.

Accordingly, given the importance of accurately classifying insurance policies for purposes of property distribution, divorcing parties should be aware that the following issues all will have relevance to the eventual disposition of the policy’s benefits: (a) the cash surrender value of the policy; (b) the beneficiaries; (c) the type of policy (whole life vs. term life); and (d) the source of funds for payment of the policy premiums.

Copyright 2011 LexisNexis, a division of Reed Elsevier Inc.

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Randy S. Margulis
Member

As a Buffalo divorce lawyer for 28 years, I have devoted myself to solving the problems that affect families throughout the Buffalo metropolitan area and Western New York. As a family law attorney, I make it my goal to create a partnership of trust with my clients. People put their trust in me to handle cases that can potentially have a long-lasting impact on not only their lives, but the lives of their family as well.

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Alexandra M. Rockwood
Senior Associate

Alexandra M. Rockwood is a Senior Associate Attorney with the Law Offices of Randy S. Margulis & Associates and has been with the firm since early 2020. She primarily practices in the areas of matrimonial and family law, including divorce, child custody, and child support. Alexandra is a practicing matrimonial and family law attorney as…

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