One of the things that’s always listed on the financial statement that you have to complete is life insurance. The court makes a distinction between the types of life insurance and there’s a difference between whole life insurance and what we call term life insurance.
Now I personally have a term life insurance policy. What that means is I pay a certain monthly premium and if I happen to die while the policy is in place, the beneficiary under the policy gets a set amount. Now what distinguishes it from whole life insurance policy is that the cash life policy does not have any kind of value at all. If it’s term life insurance policy, there’s no way to cash it out. It doesn’t have a current value. That type of insurance is not going to be factored into the equitable distribution one way or another.
That is distinguished from whole life policy. A whole life policy, generally speaking, is a policy where, for our purposes of a divorce case, is it’s a policy that has some sort of cash value. With whole life policies, you pay into it each and every month, and as you pay into it each and every month, a cash value builds so that if you want to cash it out right now or you cash it out at some point in the future, it is going to have a value.
What we do is we look at what the value of that policy is on the date of separation. For example, if you were to cash it out, the value of that would be $20,000. Well, that would be factored into property division. If one person is keeping the policy, then that is going to be considered to be a marital asset and it’s going to have to factor into the property distribution.
Now sometimes by agreement, the parties will actually include one person being responsible for the other person to be covered on their insurance. Let’s say you’ve got a situation where two people have been married for 30 plus years. One person has a greater income. It might be negotiated in a divorce settlement that one person has to carry some sort of insurance on the other. So that’s just something that you need to be thinking about going into the future.
Those are some basic types of life insurance. Again, there’s term life insurance and whole life insurance. Depending on the type of insurance, it’s going to be treated differently by the courts. The general basic idea is if it has a cash value, then it’s going to be considered in the property division by the courts.