How Are Life Insurance Policies Handled in a Divorce?

 Posted on November 16, 2020 in High Asset Divorce

divided in divorce are usually homes and vehicles, but there is one other asset that can arguably be more important: insurance policies of any kind, most specifically life insurance. Insurance policies can have significant payouts and can tip the balance in terms of property and asset division.

Child Support and Life Insurance

In Texas, if you have children, it is not uncommon that a court may ask you and your spouse to maintain life insurance policies on yourselves as both a way to provide for the children in an emergency and a way to secure child support obligations. The reasoning is not to give the former spouse a payday in the event of your death, but to ensure that your children are adequately provided for. Some former spouses hesitate to do this, but it is almost always the quickest and easiest way to ensure that your children are protected. Also, it is very often the case that the obligation to maintain life insurance results in a slight reduction in child support expenses for the paying parent.

While some have legitimate concerns about money being in the hands of fiscally irresponsible ex-spouses, there is a workaround. The most common is to list your children as the beneficiary of the life insurance policy, rather than your spouse. While your spouse will still have access to the life insurance money (in theory) if it is ever paid out, they will have a fiduciary duty to ensure that the proceeds of the policy be used to benefit the children. Failure to uphold that fiduciary duty can leave them open to contempt or embezzlement charges.

Life Insurance as Marital Property

Depending on the situation, a life insurance policy can be considered separate or marital property in Texas. If a policy is held to be marital property, Texas law states explicitly that both the proceeds and the obligation to pay further premiums (if any) will be divided equitably—that is, in the way the court deems to be fair and just.

It still may be possible for a spouse to collect the benefits on an insurance policy declared separate property, though it is not the fault of the courts. In Texas and many other states, the beneficiary on an insurance policy must be changed manually, by the policyholder - and may not be changed at any other time. With certain exceptions, it is conceivable that if a judge might side with the policyholder’s ex-spouse, allowing him or her to collect on the policy.

A Texas Divorce Lawyer Can Ensure Your Legal Affairs Are in Order

While financial affairs are often best handled by an actuary or Certified Public Accountant (CPA), it takes a sharp legal mind to approach issues and questions from a legal perspective. The experienced Austin complex divorce attorneys at Powers & Kerr, PLLC can help answer your questions about marital property and will work hard to craft a plan that gives you, your spouse, and your children the best outcome possible. Call our office today at 512-610-6199 to set up a consultation.

Sources:

https://statutes.capitol.texas.gov/Docs/FA/htm/FA.9.htm

https://legal-dictionary.thefreedictionary.com/fiduciary

https://statutes.capitol.texas.gov/Docs/FA/htm/FA.7.htm