Marital Share of Life Insurance Upon Divorce
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Attention: the information on this page pertains to the following case analysis: In re Marriage of Day, 31 Kan. App. 2d 746, 74 P.3d 46 (2003). It is recommended to read this case analysis for a full understanding.
One other point about the trial courtís order, not mentioned in the appellate decision, is worthy of quick note. Assuming that a divisible value existed, the trial courtís formula for computing the marital share was defective. By giving equal weight to all of the years in which the premiums were paid, the trial courtís formula assumed that the yearly premiums were constant. In fact, however, the annual premiums increased over time; the premium for 2016 would be almost six times as large as the premium for 1997. The percentage of the premiums actually paid by the husband was almost certain to be much greater than the trial courtís formula assumed. The court should have measured the marital share as the total premiums paid from separate funds after the date of classification, divided by the total premiums paid. Cf. Brett R. Turner, Equitable Distribution of Property 6.10 n.221 (2d ed. 1994 & Supp. 2003) (where retirement plan is based upon contributions of dollars rather than years of employment, marital share should be based upon marital and separate contributions, and not upon time). This point was moot in Day, of course, as the court rejected the division of the policy without reaching the question of marital share.
Decisions from other states have generally classified an existing life insurance policy according to the character of the funds used to pay the premiums, and not the years in which the premium payments were made. Of course, since the court divides only the policyís present value on the date of classification, only premium payments made before the date of classification are relevant. If those payments were made from marital funds, the policy is marital. See In re Marriage of Goodwin, 606 N.W.2d 315 (Iowa 2000); In re Marriage of Driscoll, 563 N.W.2d 640 (Iowa Ct. App. 1997); Wear v. Mizell, 263 Kan. 175, 946 P.2d 1363 (1997); Kambur v. Kambur, 652 So. 2d 99 (La. Ct. App. 1995); B.J.D. v. L.A.D., 23 S.W.3d 793 (Mo. Ct. App. 2000); McGuire v. McGuire, 11 Neb. App. 433, 652 N.W.2d 293 (2002); OíConnell v. OíConnell, 290 A.D.2d 774, 736 N.Y.S.2d 728 (2002); Vail-Beserini v. Beserini, 237 A.D.2d 658, 654 N.Y.S.2d 471 (1997); Dixon v. Dixon, 919 P.2d 28 (Okla. Ct. App. 1996); Graham v. Graham, 195 W. Va. 343, 465 S.E.2d 614 (1995); see also Traxler v. Traxler, 730 So. 2d 1098 (Miss. 1998) (remanding to determine the source of the premiums). If those payments were made from separate funds, the policy is separate. E.g., Wright v. Wright, 29 Ark. App. 20, 779 S.W.2d 183 (1989). Where payments were made from both marital and separate funds, the marital share is the total marital funds used, divided by the total premiums. See In re Marriage of Henke, 313 Ill. App. 3d 159, 728 N.E.2d 1137 (2000); In re Marriage of Ryman, 172 Ill. App. 3d 599, 527 N.E.2d 18 (1988); Mount v. Mount, 59 Md. App. 538, 476 A.2d 1175 (1984).
It is also important to look closely at the nature of the policy. The policy in Day was term insurance for a period of years. The court acted as if it were a single contract of insurance, with the premiums being paid over a large number of years. Other courts have treated other term policies as a series of one-year renewable contracts. When each contract lasts for only one year, the cash surrender value of the policy depends only upon the last year of premiums. E.g., Minnesota Mutual Life Insurance Co. v. Ensley, 174 F.3d 977 (9th Cir. 1999); Grost v. Grost, 561 S.W.2d 223 (Tex. Civ. App. 1977).
While the question has not arisen, it is possible that the rule for classifying any value arising from the uninsurable status of the insured might be different. To the extent that the insured is uninsurable, the value arises not from any right to surrender the policy, but rather from the existence of a right to renew the policy. The right to renew could be viewed as a result of all of the past premium payments, even those not directly under the present contract, for the right would have been lost if any of the past premiums had not been paid.
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