Generally speaking, in Maryland divorce proceedings, the spouses are required to divide all marital assets. Typically, the division must be “equal,” but there are circumstances where the division can be “somewhat” less than equal (particularly if the couple is in agreement). Because many life insurance policies – like a whole life or universal life policy – have a current “cash value,” life insurance policies are “marital assets” that are subject to division as part of the divorce. Even if the life insurance does not have a cash value, there are still important issues to be resolved regarding the beneficiaries of the spouses’ life insurance policies. And, often, one spouse will seek to have the other spouse covered by life insurance.
Dealing with cash value life insurance policies
If one or both spouses have life insurance policies with a current cash value, there are several options for division:
- Cash out the policies and divide the proceeds
- Keep the life insurance policies intact, but determine any cash value and “trade” the amount of cash value for other marital assets
- Waive the question of the division of cash value in exchange for the other spouse remaining the beneficiary of the policy or requiring that any/all children of the marriage be listed as the beneficiaries
- Set up a Trust – a college education Trust, for example – and require that the Trust become the beneficiary of the policies
- Handle the division through negotiated mandatory provisions in the spouses’ respective Last Wills and Testaments
Attention must be paid to how the policies are set up and advice should be sought from the insurance carrier. Attention should also be paid to any tax consequences of “cashing out” a life insurance policy. Information from the insurance carriers and about tax consequences will be important in making a decision on how to handle life insurance policies as marital assets.
Dealing with no-cash-value life insurance policies
Even if there are life insurance policies with no current cash value, there are other issues to resolve. For example, if there are children from the marriage, the spouses may want to negotiate or require that the children become the beneficiaries of the life insurance policies. This may be a contentious issue if one spouse intends to remarry, but the issue should still be raised and resolved.
Requiring purchase of life insurance as part of the divorce
Another issue that often arises during a divorce is a demand by one spouse that the other spouse have life insurance by either maintaining a current life insurance policy or by purchasing a new life insurance policy. Typically, the intent is to “cover” alimony or child support in the event that the “paying” spouse dies. The contentious issue, of course, becomes who pays the premiums for the policy. Life insurance is not cost-free. Since support for children is a high priority, divorce courts are more likely to order that life insurance be purchased if child support is ordered.
What about death benefit policies through an employer?
Less contentious are death benefit policies that might be provided by an employer in the event of a work-related death. In many cases, the spouses can agree that the benefits from such a death benefit should be designated – in whole or part – for the “money-receiving” spouse and/or the children. Maryland divorce courts are also generally inclined to order this remedy.
Maryland and D.C. Family Law Attorneys
For more information, contact the seasoned and experienced Maryland and D.C. divorce and family law attorneys at The Law Offices of Thomas Stahl. We have the experience and expertise you need. Schedule a consultation today or call us at (410) 696-4326 or (202) 964-7280.