Pasternak & Fidis Reporter

October 10, 2017

Life Insurance and Divorce – Virginia Legislature Extends Authority of Divorce Courts Over Life Insurance Policies of Spousal Support Obligors

Spousal support is an important element of many divorces.  When couples have been married for a long time, have supported each other’s careers, and have made sacrifices in their own lives in order to provide that support, alimony is often essential to afford former spouses financial security as they rebuild their lives as individuals outside of marriage.

A major concern those receiving support may have is: “what happens if my former spouse dies?” In Maryland, D.C., and Virginia, spousal support obligations terminate upon the death of either party.  When married, life insurance helps to protect people from the financial devastation that can result from losing a spouse.  Divorce can affect life insurance beneficiary designations.  In Virginia, divorce automatically divests a former spouse of any interest in death benefits for which they were designated a revocable beneficiary.  In Maryland and D.C., a former spouse is not automatically divested of any interest in a life insurance policy; however, a policyholder may remove the former spouse as beneficiary.

For couples divorcing in Virginia, all of that has changed.  During its 2017 session, the Virginia General Assembly acted to promote its policy of ensuring financial security for recipients of spousal support.  The new statute, found at Virginia Code Ann. § 20-107.1:1, permits courts to order a party paying spousal support to maintain an existing life insurance policy that was issued during the marriage and where the recipient spouse was designated as a beneficiary of that policy during the marriage.  Courts can order that the party paying spousal support designate his or her former spouse as a beneficiary of “all or a portion” of the life insurance policy.  The court can also allocate the policy’s premium between the two parties.

The court will take a number of factors into account when considering whether to order maintenance of a life insurance policy, including: the age and health of both spouses, the cost of the policy, and the amount and duration of the spousal support award.

What this means for people who are awarded spousal support in Virginia:  If a court in Virginia awards spousal support, it can now also order your former spouse to maintain any life insurance policies that existed during the marriage, for which you were named a beneficiary.  You will remain a beneficiary of your former spouse’s life insurance policies until your former spouse has satisfied his or her spousal support obligations to you.  This can protect you from the loss of support if your former spouse dies.

Courts in D.C., Maryland, and many other jurisdictions, do not have the authority to order a party to maintain his or her former spouse as a beneficiary on a life insurance policy; Virginia is unusual.  However, a court order is not necessary to secure this type of contingency support.  One of the many advantages of settling a case is that parties have more flexibility to bargain for benefits that courts cannot provide on their own.  All three jurisdictions enforce settlement agreements requiring one party to maintain the other as a beneficiary on a life insurance policy.  A negotiated settlement allows parties flexibility to, for example, extend the obligation past the termination of support, provide for proceeds to go into a trust, and require life insurance to secure a child support obligation.