Many Dallas couples have term life insurance policies that cover one spouse and name the other spouse as the beneficiary. Because most such policies pay only if the covered individual dies, they typically have no current cash value. Does that mean they are not subject to property division in a divorce? Generally, yes. In many cases, the covered spouse simply names a new person to replace his or her ex as beneficiary. However, the other spouse does have some options.
In any Texas divorce, division of marital property starts with an accounting of all marital assets and debts. The court then divides these between the parties according to the state’s community property law. Assets that may be included in the marital estate include the cash value of any life insurance policies. If the policy has no cash value, there is no asset to be divided.
The story does not end there, however. Consideration should be given to the purpose for which the life insurance policy originally was purchased. Was it intended to help one spouse financially provide for the couple’s children if the other spouse died? In that case, the intended purpose of the policy likely will exist even after divorce. The parties may agree to transfer ownership of the policy and responsibility for making the premium payments to the spouse who is named as beneficiary. That spouse then could remain the policy beneficiary.
If the reason for the policy no longer exists – for example, if it was intended to provide a way for the beneficiary spouse to make mortgage payments on the marital home if the covered spouse died – there may be no need to transfer the policy. An experienced family law attorney could advise as to the best course of action based on the couple’s particular situation.
Source: Fox Business, “Don“, Jack Hungelmann, May 06, 2013