Almost everything you own is potentially subject to division in divorce. This includes the obvious things like the family home, cars and retirement accounts, as well as things you might not think about, like your life insurance policy.
You may not realize it, but your life insurance policy might be something to split up with your ex — in a way. Whether this will happen in your property division or not depends on what kind of policy you have.
Term life or whole life?
First, if you have term life insurance only, it likely will not be an issue in the division of assets. The value of a term life policy is its death benefit, but if you are getting divorced, you are (obviously) still alive. Most of the time, term life insurance is treated as a nonmarital asset.
Then there are products like whole, indexed and universal life insurance. These types of policies have an investment component called their “cash value.” Assuming you took out the policy during the marriage, its cash value can be considered marital property.
Handling the cash value division
Unlike a bank account, a life insurance policy cannot simply be divided in two. But like with other assets you cannot or don’t want to split, you can get creative. You and your ex can negotiate using other assets to replace their share of the policy’s cash value. This typically involves cashing out the policy, which could make sense anyway as your financial outlook has changed.
Whatever you, your ex, and your divorce attorney decide to do with your life insurance, it is just one of many decisions you will have to make during the divorce process. Fortunately, your lawyer will be there to walk you through each step.