How Are Life Insurance Policies And Wills Affected By A Divorce?

Matthew Brickman:

Hi, I’m Matthew Brickman, Florida Supreme court mediator. Welcome to the Mediate This! Podcast where we discuss everything mediation and conflict resolution.

(00:14):
Hi, and welcome to another episode of Mediate This! I had a listener write in and ask, how are life insurance policies and wills affected by a divorce? That’s a great question because it’s sort of, uh, three parts, and we’re gonna break this down. First, we’re gonna talk about wills. Um, your will, that is what you should be updating probably, I think it’s about every two years they say, because, you know, you’re, you’re gonna, you know, obtain assets. You may, you know, get rid of assets. Um, you may have a family feud and you may want to change the executor of your estate or may wanna cut somebody outta your will. Or maybe you had a baby that was born and now you want to add a grandson or granddaughter to your will. So you wills, they’re not gonna be affected by your divorce, um, except that you’re gonna have to update it after the divorce because you may not want to have your spouse getting everything in the event of your death.

(01:05):
So your will, you’ll need to update it after your divorce, but that’s it. I mean, your, you know, your divorce itself doesn’t impact your will. Your will will need to be updated based on your divorce. Um, so next, let’s talk about life insurance policies. It depends. Um, first, let’s talk about whole life insurance policies. Whole life insurance policies have a, what we call a cash surrender value. So if you have a whole life insurance policy, it’s going to have a value that then you can cash it in and get the money right now. Um, and so if you have a whole life insurance policy, it will be treated just like everything else in equitable distribution. So say for example, you have a whole life insurance policy worth $30,000 and you obtained it during the marriage, well then the wife would be owed, or the husband, whoever has it would be owed.

(01:56):
The other spouse would be owed half the value. So if it’s $30,000, they’re owed $15,000. Now does that mean that you cash it out and give them 15? No. That means that in the equitable distribution scheme of things, as we are moving numbers back and forth, they may get a little bit more of something else, and then you’ll just keep that whole and intact without having to liquidate it and pay them. Um, but that’s how a whole life, a whole life will be treated just like any other asset of the marriage that is divided equally between the parties if it’s all marital. Um, if it’s not all marital, well then it’s the marital portion. Again, you know, how we define marital portion is date of marriage to date of filing. So if you had a whole life policy where $30,000 on the date that you got married and you did not put any more money, invest in it, add anything during your marriage, then it’s all non-marital, if you added to it, well, the 30,000 would still be yours and whatever you put in it during the marriage, that would be, uh, the marital portion.

(03:00):
Um, so then we talk about term life insurance policies. So term life, that’s what most people have. They’ll have a 15 or maybe a 30 year term life that if you happen to die within this period of time, then find there’s a payout. If you happen to hit that term and you’re still alive, then the policy expires, but there’s no way to cash it in, get anything for it. So with those, those we don’t care, um, those, that’s not part of equitable distribution. Where those may, and it depends where they may come into play, is they may come in to secure a child support or an alimony obligation. So, um, so say for example that, um, you have a term life insurance policy, say worth, you know, $500,000 and we run the child support, we figure out that it’s X amount per month. We know that your child is a certain age, so we take, you know, however many months it is until the child emancipates times the child support that gives us the number.

(04:07):
So let’s say that you have a half a million dollar life insurance policy and the total amount of child support that you are going to pay by the time your child emancipates, if there’s no modifications is a hundred thousand dollars. Well then what we’ll do in the agreement is we will say, okay, so you have to name the other spouse the beneficiary for the benefit of the minor child for X amount. So it would say that, you know, let’s say that the father’s paying child support and has the term life insurance policy. So the father will designate the mother the beneficiary for the minor child for the amount of a hundred thousand dollars. Um, and so that’s where then insurance policies come into play in a divorce. Now, let’s say that, um, both parents have an insurance policy. Well, when we run child support, um, the breakdown on the child support, and I think I talked about this in a previous episode, you know, at one point, you know, it’s, it’s, it’s this whole calculation and then the mother owes the father, the father owes the mother.

(05:15):
You do the differential and you get the child support. So what the statute currently says is, so long as it’s reasonably available and reasonably affordable, both parents will obtain, uh, a child support or a life insurance policy to guarantee the child support. Now, why, like, let’s say for example, going back to our scenario that the father is the one paying the child support. Why would the mother need to have a life insurance policy to guarantee that? Well, let’s say for example, that God forbid the mother gets in a car accident and dies. Well, now that means that the father has the child. Well, the father’s gonna need some support to help support the child. Just like if the father died and the mother has the child, well, then the mother would need support. So that’s why both parents and under the guidelines, the mother owes the father, the father owes the mother.

(06:04):
Both people are contributing to child support. There’s just a differential to give you the final number, but again, it says so long as it is reasonably available and reasonably affordable. I had a mediation recently where the mother wanted the father to get a life insurance policy to guarantee the child support. The problem was this, the age difference between the husband and the wife, um, I believe was 19 years. And the husband was older, the wife was younger, the husband had a lot of medical issues. He recently had cancer. It was not going to be reasonably available and reasonably affordable. I’ve even had some mediations in some circumstances where, you know, they were just older in life. They had issues and they were uninsurable. I’ve had a couple where they were uninsurable, they could not get insurance. And again, it defers to the statute that says, as so long as it’s reasonably available and reasonably affordable, well it’s not reasonably available or affordable.

(07:07):
And so then in that case, well then there is none. Um, in a case like alimony, um, we would typically use a life insurance policy to guarantee alimony, um, for the same exact reasons like child support, that if one spouse should die, at least, you know, whatever would’ve been paid out is there. Um, so you know, it, it’s a lot easier now, being that we don’t have lifetime alimony, uh, on the statute because, you know, lifetime alimony, it’s sort of hard to calculate infinity, right? Uh, you know, to a certain date because we don’t know what that date is. But now we know because we have the calculation and the statute that then tells us exactly how many years, how many months, what is the maximum. And so once we determine that, then it is much easier now to determine a life insurance to guarantee.

(07:58):
Now let me just throw this in here. That for both life term life insurance policy to guarantee child support and or alimony, a lot of times people will want a reduction year to year for the amount paid. So say for example, that, um, there is an alimony obligation and a child support obligation, and let’s say that it’s, you know, $2,000 a year, or sorry, $2,000 a month, so that’s $24,000 a year. What we may do is we may say that, you know, ev, you know, upon every calendar year or on January 1st of every subsequent year, the father can reduce the amount designated for the benefit of the child or to the mother for, uh, alimony by $24,000. That way, let’s say for example, he’s been paying for a number of years and then he dies. Well then she didn’t, she doesn’t get just the, uh, just the face value because she would’ve already gotten all the payments. Now she got an overpayment. And so sometimes we’ll, we will build in there that there is a step down that is according to what was paid. So if he’s paying $2,000 a month every year, that’s 24,000. So then he can reduce 24,000 every single year. That way, if he dies, then it’s the remaining amount, not the total amount.

Matthew Brickman:
Occasionally Sydney and I will be releasing Q&A bonus episodes where we’ll answer your questions and give you a personal shoutout.

Sydney Mitchell:
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Matthew Brickman:

For more information about my services or to schedule your mediation with me, either in person or using my iChatMediation Virtual Platform built by Cisco Communications. Visit me online at www.iMediateInc.com. Call me at 561-262-9121, Toll-Free at 877-822-1479 or email me at MBrickman@iChatMediation.com.