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Many may think that during divorce, only physical materials such as homes and vehicles are the only types of assets divided, but there are a wide variety of assets that can come into play. One financially valuable asset is insurance policies, especially life insurance policies.  

Life insurance policies can have considerable payouts and can balance the division of assets between divorcees.

Today, your experienced divorce attorneys in Houston, TX, will help you better understand the role life insurance policies may play in your divorce. 

Texas Family Code

Section 9.301 of the Texas Family Code says that a divorce decree will make it ineffective for a beneficiary designation that favors a former spouse for a life insurance policy unless one of the following three exceptions applies:

  1. The decree identifies the former spouse as beneficiary;
  2. The insured spouse redesignates the former spouse following the decree’s date;
  3. The former spouse is designated to acquire the proceeds that were agreed to on behalf of or for the benefit of a child or dependent of either former spouse.

Child Support and Life Insurance

In Texas, if you have children, a court may request that you and your spouse sustain life insurance policies on yourselves in order to support children in an emergency and to also secure child support requirements. 

The reasoning is not for the benefit of the former spouse, but to ensure children are sufficiently cared for if either parent loses their life. There will be certain former spouses who hesitate to do so but it is oftentimes the fastest and easiest way to know children are fully protected.

Also, it is relatively common that this requirement to maintain life insurance leads to a slight drop in child support costs for the paying parent.

While it is a valid concern to leave money to a financially irresponsible ex-spouse, there are methods to ensure the child truly benefits from the life insurance policy.

One definitive way is listing your children as the beneficiaries of the life insurance policy instead of your ex-spouse. While your former spouse will still theoretically be able to access the life insurance funds, they will have a fiduciary obligation to guarantee that the policy proceeds are used for the children. Failure to comply with this duty can lead to charges of contempt or embezzlement.

Life Insurance as Marital Property

Depending on the circumstances, a life insurance policy can be viewed as separate or marital property in Texas. If a policy is filed as marital property, Texas law explicitly states that both the money and duty to pay future premiums (if any) will be divided equally, or in a way the court considers fair.

It is worth noting that In Texas and several other states, the beneficiary on an insurance policy has to be adjusted manually – by the policyholder – and may not be changed any time after that. With particular exceptions, the chance still stands for a judge to rule in favor of the policyholder’s ex-spouse, letting them collect on the policy.

Determining What Type of Life Insurance Policy You Need

Your individual circumstances will dictate what kind of life insurance policy is best for you to invest in. 

Term life policies usually are the best options for the vast majority of people, but those with unique situations, such as a child with special needs or a high net worth, may require a permanent life insurance policy.

The Law Offices of Douglas Ray York, P.C., Can Assist You in Keeping Your Legal Affairs in Order

Going through the finalization of a divorce can be tedious and complicated; understanding how life insurance may play a role in the process is critical. Knowing whether your policy is a marital asset, who the beneficiaries are, and whether owning a policy should be included in your agreement will guarantee your loved ones have the financial support they need when you’re gone.

The Houston divorce attorneys at the Law Offices of Douglas Ray York, P.C., are more than willing to answer your questions regarding marital property and will work tirelessly to develop a plan that gives you, your spouse, and your children the best outcome. 

Choose the right life insurance policy for your divorce when you contact our skilled Houston divorce attorneys today!