Division of Insurance

Insurance can be a difficult asset to classify for the purposes of division upon divorce. Many Del Mar residents wonder whether the default community property presumptions apply to this more complicated asset. As a general rule, all property acquired during marriage is community property and thus divided equally between the spouses upon divorce. All property acquired before marriage or after the date of separation is separate property. Each spouse’s separate property is awarded to him or her in full upon divorce. When distributing an insurance policy, problems can arise when both community and separate property funds have been used to pay the premiums. The classification of the insurance policy is dependent on the type of policy purchased. There are two main types of life insurance: term life and whole life.

Term Life Insurance: Term life insurance insures against the risk of death for a defined period of time. Upon the death of the insured spouse, the surviving spouse will have a community property interest in the proceeds of the policy if the most recent premium was paid with community property funds. This “final premium rule” applies despite the fact that another person is the named beneficiary on the policy. If the final premium was paid with separate property funds then the proceeds of the policy are awarded solely to the spouse’s estate and distributed to the named beneficiary. Generally, upon divorce, a term life insurance policy has no cash value and is not a divisible asset. A spouse may argue that the insurance policy has a replacement value and is therefore subject to division. It is important to note that during the dissolution process the named beneficiary should not be changed.

Whole Life Insurance: A whole life insurance policy combines a term life insurance policy with other investment and savings qualities. To the extent that the policy has current cash value, the cash value is community property in proportion to the percentage of premiums paid with community funds. There is also a separate property interest in the policy in proportion to the premiums paid with separate property. The proportion is measured by the entire history of the policy, not just the most recent premium. The remainder of the policy, the term life insurance portion, is distributed according to the above rules regarding term life insurance.

Please contact us if you are considering a divorce from your spouse, a legal separation, or have questions regarding child custody and visitation. Nancy J. Bickford is the only attorney in San Diego County representing clients in divorces, who is a Certified Family Law Specialist (CFLS) and who is actively licensed as a Certified Public Accountant (CPA). Don't settle for less when determining your rights. Call 858-793-8884 in Del Mar, Carmel Valley, North County or San Diego.