Valuation 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.
The husband also argued that the trial court erred in valuing the two policies at issue. Courts considering this situation have commonly begun by noting that the trial court is permitted to divide only the property which is owned by the parties on the date of classification. When the parties own a life insurance policy, and the insured person is still alive, the parties do not own the proceeds of the policy at the time of the divorce. All they own is the policyís immediate cash surrender value. By definition, term life insurance has no cash surrender value. Therefore, term life insurance acquired with marital funds is a marital asset, but its value is zero, so it cannot be divided upon divorce. See In re Foottit, 903 P.2d 1209 (Colo. Ct. App. 1995); In re Marriage of Driscoll, 563 N.W.2d 640 (Iowa Ct. App. 1997); Kambur v. Kambur, 652 So. 2d 99 (La. Ct. App. 1995); Traxler v. Traxler, 730 So. 2d 1098 (Miss. 1998); Dougherty v. Dougherty, 256 A.D.2d 714, 680 N.Y.S.2d 759 (1998); McGuire v. McGuire, 11 Neb. App. 433, 652 N.W.2d 293 (2002); Kellner v. Kellner, 8 Neb. App. 316, 593 N.W.2d 1 (1999); Fox v. Fox, 626 N.W.2d 660 (N.D. 2001); Dixon v. Dixon, 919 P.2d 28 (Okla. Ct. App. 1996).
The Kansas Court of Appeals agreed with the general rule on valuation of an existing life insurance policy. Indeed, it noted that both parties had valued the insurance at zero on pretrial statements of marital assets. "[U]nder our facts, the parties appear to both have valued the policy on [the motherís] life at zero, and since she was alive at the time of the trial courtís ruling, it was erroneous to value the policy in making the property division as if she had died during the pendency of the divorce proceeding." Day, 31 Kan. App. 2d at 753-54, 74 P.3d at 51.
Unlike most of the equitable distribution cases, however, Day did not go so far as to hold that term life insurance can never have value. This is the most interesting part of the courtís decision. The court held:
In describing term insurance, Holmesí Appleman on Insurance 2d 1.25, 126-27 (1996), states:
"Term life insurance, unlike whole life insurance and analogous forms, has no cash surrender value or loan value. . . . A true term contract would have no loan or cash value, or, in fact, any value except in the event of the death of the insured prior to the expiration of the contract."
This is not precisely true, for, as we will hereafter consider, if Darlene was no longer insurable on an anniversary date of the term contract, some value, although difficult to determine, would in fact exist.
31 Kan. App. 2d at 753, 74 P.3d at 51.
It is interesting to note that, in several states, it has been held that term life insurance policies cannot be considered marital property subject to division as they have no present value. C.M.D. v. J.R.D., 710 S.W.2d 474, 477 (Mo. App. 1986); McGovern v. Broadstreet, 720 P.2d 589, 590-91 (Colo. App. 1985). A better rule seems to have been espoused in two California cases, In re Marriage of Gonzalez, 168 Cal. App. 3d 1021, 1025-27, 214 Cal. Rptr. 634 (1985) (term insurance has value because replacement cost might be significantly higher and insurability might be in issue), and Estate of Logan, 191 Cal. App. 3d 319, 325-26, 236 Cal. Rptr. 368 (1987) (term insurance policies typically contain elements of present coverage and right to renew without proof of current insurability, but if insured remains insurable, a term policy does not constitute a divisible community asset since the policy is of no value and the community has fully received what it bargained for).
31 Kan. App. 2d at 755, 74 P.3d at 52. On the facts, because both parties had valued the policies at issue at zero, and no one had proven or even argued that any value arose from the potentially uninsurable status of the mother (who "was 79 or 80 at the time of the trial," 31 Kan. App. 2d at 748, 74 P.3d at 48), the court held that the policies had no present value.
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