How divorcing couples may use a life insurance policy

On Behalf of | Sep 20, 2021 | Uncategorized

Couples often purchase term or universal life insurance policies and list each other as beneficiaries. After a spouse’s death, the policy’s proceeds may help the surviving spouse settle the deceased’s tax and financial matters. An imminent divorce, however, may cause many couples to rethink their plans regarding their policies’ beneficiaries. This may require thoughtful consideration before filing for divorce.

As reported by MoneyWisdom, when two soon-to-be ex-spouses hold a life insurance policy and file divorce papers, Massachusetts law prohibits changing the policy’s named beneficiaries. Couples may, however, change beneficiaries before they submit documents to the court. They may also use their policies to negotiate the division of other marital assets.

Policyholders may consider naming new beneficiaries

It might make some individuals uncomfortable to consider leaving their ex-spouse named as a beneficiary on an insurance policy. If the spouse, however, takes custody of a couple’s children, the proceeds may instead provide for the kids’ needs.

According to, life insurance companies will not distribute proceeds to minor children. Many do, however, allow a policyholder to list a trust as a beneficiary. By creating a trust to receive a policy’s proceeds, a reliable trustee can manage the money on behalf of children under 18.

Cash value policies may allow a trade for other property

As noted by, a term life insurance policy does not have cash value and does not classify as marital property. Whole or universal life insurance, however, may have cash value, which requires dividing between two spouses. A spouse may also choose to give up the cash value from a policy in exchange for ownership of another valuable asset.

When a divorce is under consideration, pre-filing insurance policy revisions may serve to improve one or both spouses’ post-marital circumstances. Cash value policies may also serve as a workable negotiation point when deciding property division.