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Till Death Do Us Part: Life Insurance and Family Law

Maintaining life insurance and naming the beneficiaries are common topics when dealing with family law cases. Just as no one likes to discuss divorce and taxes, no one likes to discuss death. The NC Department of Insurance has an excellent publication, the Consumer Guide to Life Insurance which includes a glossary, simple comparison of the advantages and disadvantages of the different types of policies, and other information in layman’s terms. When parents agree how the insurance will be dealt with, they can include it in a separation agreement or have their attorneys add it to a settlement to be signed by the judge to become part of a court order.

Marital Property Cases

In marital property cases, life insurance is merely an asset to be awarded to one spouse or the other. In those cases, the court generally assigns a value to the policy. For example, if the policy is a whole life policy, the court will assign a value based on the cash surrender value. If it is a term life insurance policy it has no value at all unless the person dies and the death benefit is paid, so the court will assign a zero dollar-value to the policy and award the policy to the owner.

Child Support and Alimony Cases

Life insurance is used to protect the stream of income for person receiving child support or alimony. In North Carolina, alimony is not payable after the death of either party, so a former spouse receiving alimony cannot make a claim against the estate for continued alimony. Therefore, life insurance is a tool that may be used to bridge the gap if the former spouse who was paying alimony dies. Likewise, in child support cases, life insurance can be used to protect the parent receiving child support.

Different Options

When reaching an out-of-court settlement, families can make all types of arrangements. If they are using life insurance to secure child support they might agree to keep the policy in place until the last child reaches a specific age. Or, the pares contract by mutual agreement to maintain the beneficiary designation permanently. Gradually decreasing the death benefits can secure child support while keeping the amount of the insurance premium down. In certain cases, owners have the ability to take loans to borrow against the value of the policy, so that issue should be addressed as well. 

Beneficiary Designations

If you have an estate plan in place, talk to an estate planning attorney for advice about your life insurance. If not, talk to one before your family law case is finished. Things as “simple” as naming the proper beneficiary are critical. For example, designating your minor child as the sole beneficiary can be a recipe for disaster if you aren’t careful. The designation might mean a guardian (not automatically the surviving parent) must be appointed by the court and the funds held by the courts. The child then has an “estate” which requires bookkeeping and annual reports to the court known as accountings of the estate. Or, the pares might agree to name an adult or a trust as the beneficiary. There are also options available pursuant to the North Carolina Uniform Transfers to Minors Act (UTMA). Life insurance companies have articles that might be helpful in giving you topics to discuss with your estate planning attorney.

The “Take Away” of This Article

Unless you are subject to a court order or separation agreement that requires you to maintain a policy in a certain manner, update your life insurance beneficiary designations when and if you decide your spouse is not the person you choose to receive the proceeds. If your ex is still designated as your beneficiary, he or she remains the beneficiary and it doesn’t matter if you separate, divorce, remarry, have kids or twenty years pass. You can usually change your life insurance beneficiary at any me. If you choose to change the beneficiary designation on a policy, request a “change of beneficiary” document from the life insurance company, Veterans Affairs, the NC State Treasurer, or your Human Resources Department. Many large employers have the “change of beneficiary” document available online. Change the beneficiary designation in writing, return the form, and confirm in wring that the life insurance company has received the change of beneficiary form.

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