Disclaimer: This article does not constitute legal advice. If you have any questions about your individual situation it is best to seek the advice of an experienced legal professional.
Life Insurance is more than a strategy to cope with the inevitable. It is also commonly used as an estate planning, financial planning and asset protection tool. If you are getting a high net worth divorce, life insurance represents a significant marital asset.
The following are 3 reasons to consider life insurance in your divorce, especially if you are about to embark on a divorce with complex assets:
- Life Insurance helps to ensure your children are taken care of. One way life insurance is often used in divorce is to ensure that children are supported in the event that the person paying child support is unable to do so. Courts can order people to take out life insurance as a way of securing maintenance for children. Many parents choose to be proactive about it and take out policies that suit their needs, or use their existing policies to negotiate an agreement with their divorcing spouse outside the courts. Divorce mediation can clarify these negotiations and suggest options for securing your children’s future.
- Life Insurance can be a high value investment with deferred tax benefits. High net worth individuals may purchase more than one life insurance policy, and these policies may have a cash value and/or a value as an investment. For example, Permanent or Whole Life Insurance is an alternative to Term Life Insurance that lasts throughout life and not only has a death benefit but can accumulate interest as savings and can even be sold for cash. These life insurance policies can be quite valuable and may be exchanged during divorce as a marital asset or sold for cash and the cash divided. Life insurance is tax advantaged as it confers a deferred tax benefit that can be advantageous for optimizing an individual’s total estate. High net worth individuals might want to use life insurance to protect their children’s inheritance because it can reduce the amount of tax paid on the estate as it is not usually taxable, and it will also help to pay for the estate’s expenses. Divorce mediation for high net worth people often looks to the future to make careful plans, which may include estate planning. This is especially important if you have children and want to protect their inheritance in case a future spouse remarries.
- Life Insurance can be used to fund a buy-sell agreement if a business owner is getting a divorce. Life insurance is often used by High Net Worth business people as a way to protect assets or to fund the sale of a business. Many business owners have a buy-sell agreement that can draw on life insurance to fund a business transfer or buyout. Life insurance could play a key role if one or both spouses own a business and they are about to get a divorce.
Life insurance is an important puzzle -piece in a complex, high net worth divorce. Far from being just a humble estate planning tool, it may play a pivotal role in long-term financial planning for high net worth couples. For this reason, people with complex assets should be intentional in their decisions about life insurance if they are getting a divorce. The value of life insurance as a marital asset may be affected by many factors such as the age of the parties, how long the premiums have been paid and what kind of policies are taken out.
At Divorce Options San Diego, we help divorcing spouses gain a more comprehensive picture of their total marital assets so they can optimize their community property as part of a strategic, non-adversarial divorce. We work with people getting a high value divorce who may have complex assets which may include international assets, insurance policies, retirement accounts and other assets that require strategic evaluation and complex property division. We are high level divorce mediators and negotiators who have financial and legal expertise. We can mediate with you in person or remotely depending on comfort and convenience. We have offices in San Diego, CA, Silicon Valley and Berkeley, CA. Please contact us to learn more about our high level West Coast divorce mediation services.
