How Is Life Insurance Handled in a Divorce in NY?

Divorce is always an emotional and complicated process, especially when it comes to dividing assets and planning for the future.

Many divorcing couples don't think about life insurance coverage until they absolutely have to. In New York, life insurance policies can be a critical part of divorce proceedings, and knowing how is very important.

Those who are considering divorce should always work with a divorce lawyer who understands concepts like how existing life insurance policies can affect a divorce. They can advise on how social security is handled in a divorce in NY. One of these people is Said Ibrahim from Divorce & Family Legal, LLC.

Is Life Insurance Considered Marital Property in NY?

New York state uses an equitable distribution system to determine how property is divided during a divorce. With this system, property is categorized as either separate or marital. Separate property refers to assets that are obtained before the marriage (or through inheritance/gift), while marital property includes assets that were acquired while married.

It's possible that life insurance policies might be considered marital property if the following is true:

• The policy was purchased during the marriage

• The life insurance premiums were paid using marital funds

• The intention of the policy was to benefit both spouses or the family

If one spouse purchased the policy before they were married, and no funds were used to pay the premiums, it's possible that the policy would be separate property.

Types of Life Insurance and Their Impact on Divorce

There are two main types of life insurance that people have: a term life insurance policy and a whole life insurance policy. In a divorce, the type of policy matters:

Term Life Insurance

Term life insurance works for a specific period of time and does not have a cash value component. This type of policy only pays out a death benefit, and it doesn't have any value during the life of the policy owner. New York doesn't consider a term life insurance policy a marital asset, but it still might be part of a divorce settlement, particularly if there is a life insurance beneficiary.

Whole or Permanent Life Insurance

Whole, or permanent, life insurance policies, have a cash value, and this value gets greater over time. The cash value of this type of policy is an asset, and thus, it may be divided in a divorce. If the permanent policy has enough value, one spouse might be entitled to a share, or the value of the policy is factored into the division of marital assets.

Life Insurance as a Financial Tool in Divorce

Life insurance is often used as a financial planning tool to offer financial support to a spouse and children in the event that a person dies. In a divorce, life insurance coverage is used to ensure that their spousal support and child support payments are met in the event of death. In fact, court ordered life insurance is often required in some situations:

• One spouse is totally (no annual income) or mostly reliant on the other and will get alimony payments

• The couple has minor children

  
  

Beneficiary Designations After Divorce

One of the most important parts of a life insurance policy during a divorce is updating the beneficiary. In New York, there are life insurance beneficiary rules for divorce. Called insurable interest, this means that the spouse will not be the beneficiary unless otherwise stated. However, it's not always automatic to add a new beneficiary with most life insurance policies. It's up to the policyholder to contact the life insurance company to change this. If the policyholder doesn't do this, the ex spouse could still be the beneficiary and receive the policy's death benefit.

Exceptions and Enforcement

In some cases, the divorce judge may require one spouse to maintain a policy and name the other as a beneficiary. This can happen when:

• There are minor children involved who must be financially protected

• The policy serves as a guarantee for support payments or to protect alimony

• The couple agrees to such terms in a settlement for financial security

Courts can enforce these terms, and failure to maintain the required policy can result in legal consequences.

Valuing a Life Insurance Policy in Divorce

If a life insurance policy is determined to be a marital asset, its value must be calculated.

For term policies, this is generally straightforward, as they usually have no cash value. For whole life policies, the court will typically look at:

• The cash value of the existing policy

• Any loans taken against the policy

• The premium payment history and funding source (marital vs. separate funds).

Once the value is established, the court may order one spouse to buy out the other’s interest, it might order someone to obtain life insurance, or if they don't have adequate life insurance, they can get a new life insurance policy. Experience suggests, this divorce attorney in Albany may be able to help.

Can Life Insurance Be Divided?

Direct division of a life insurance policy is pretty unusual. Instead, the value of the policy is considered part of the total marital estate. For example, if a person has a policy with a cash value of $50,000, one spouse may keep the policy and the other gets another marital asset of equal value.

Life Insurance and Child Support in New York

In a divorce where young children are involved, the court might require the noncustodial parent, the one without primary custody, to keep or purchase life insurance to secure child support or other financial obligations. This gives the divorced parent enough coverage to replace child support in the event of their death. In this case, the court can require the following in the divorce decree:

• How much life insurance is required

• How long the life insurance policy has to be kept

• The designated beneficiary, which is usually the children's sole caretakers, often the former spouse (the custodial parent)

Life insurance can be a complex and critical part in a divorce agreement. Whether it's being used as a financial safety net for children, a tool to secure spousal support, or an asset subject to division, understanding how it is treated under NY law is essential. A knowledgeable divorce attorney like Said Ibrahim can help individuals navigate these issues and ensure that their interests—and future—are fully protected. As well as answer questions like how is inheritance handled in a divorce in NY? People should also consider speaking to a financial professional who understands divorce cases and can help with financial goals.