How to Handle a Life Insurance Policy During Divorce
When you’re going through a divorce in Nevada, you might be surprised by what counts as shared property. While homes, vehicles, and bank accounts typically come to mind first, many clients are caught off guard when they discover life insurance policies may also be part of the property division process. Term life insurance policies go with the policy holder, while policies with any sort of cash value could be considered martial property! Here’s the details:
What Happens to Life Insurance During Divorce?
Not all life insurance policies are treated the same way in divorce proceedings. The type of policy you have makes all the difference in how it will be handled.
Term Life Insurance Policies
Have a term life insurance policy? These policies typically don’t factor into property division. Why? Term life insurance only has value when the insured person passes away. Since you’re very much alive during your divorce, there’s no cash value to divide between you and your soon-to-be ex-spouse. In most Nevada divorce cases, term life insurance policies are considered non-marital assets and remain with the policyholder.
Whole Life, Universal, and Indexed Policies
These types of policies are a different story altogether. Unlike term life insurance, these policies include an investment component that builds actual cash value over time. If you purchased one of these policies during your marriage, the cash value that accumulated is likely considered marital property under Nevada law. This means the cash value may be subject to division between you and your spouse.
Think of it like buying a house. If you bought the house during your marriage and the house gained value, that value is probably subject to division between spouses. Use our Nevada separate property calculator to experiment with different scenarios of how such things would be split.
How to Split a Life Insurance Policy
You can’t simply cut a life insurance policy in half like you might do with a bank account balance. Here are some practical approaches we typically recommend to our clients:
Use a cash value offset. Rather than trying to divide the actual policy, you might offset your spouse’s share of the cash value with other assets. For example, if your policy has a cash value of $50,000, you might keep the entire policy while your spouse receives an additional $25,000 from another asset like a retirement account or equity from your home.
In some cases, it makes sense to cash out the policy entirely. This is particularly true when your financial situation and insurance needs have changed significantly due to the divorce. The cash proceeds can then be divided according to your divorce agreement.
Sometimes the best approach is for each spouse to obtain new, separate policies after the divorce. This creates a clean break and allows each of you to tailor your coverage to your new life circumstances.
Beneficiary Considerations
Don’t forget to review and update your beneficiary designations after your divorce. Many people forget this critical step and inadvertently leave their ex-spouse as the beneficiary on their policy. In Nevada, while laws exist to automatically revoke ex-spouses as beneficiaries after divorce, it’s always better to make these changes explicitly by contacting your insurance company directly. If you have children, the court may order one or both parents to maintain life insurance policies with the children named as beneficiaries. This helps ensure your children’s financial security regardless of what happens to either parent.
Get Expert Help with Your Divorce
Handling life insurance during divorce is just one of many complex financial matters you’ll face. At Kelleher & Kelleher, our experienced family law attorneys help Las Vegas families find practical solutions to these challenges every day. Don’t try to figure out these complicated issues on your own. Call us today at (702) 384-7494 to schedule a consultation with one of our knowledgeable family law attorneys. We’ll help you protect your assets and secure your financial future as you move forward with your life.