Life Insurance & Divorce in Maine

Not all life insurance policies are created equal when it comes to divorce and property division. To make matters more complicated, there are no universal laws concerning who receives life insurance after couples go their separate ways.

What happens to your life insurance policy after divorce in Maine and whether it is regarded as part of the marital estate depends on the type of policy you purchased and the state where it was issued. The most important distinction is between term life insurance and whole life insurance.

Term life insurance usually covers around 10 to 30 years and is generally purchased for a temporary financial need, such as putting the kids through college or paying a mortgage. It typically expires when that financial need ends.

If a person dies within the specified period, the beneficiary or beneficiaries receive a payout from the death benefit (most people purchase 10 to 15 times their annual income).

However, it would not be considered a marital asset in the event of separation and divorce. It holds no “cash value” while you are alive (only if you die) so it would be considered “separate” property in a divorce.

This means that under Maine’s equitable distribution laws, there is no requirement to divide the insurance with your spouse during a divorce.

Whole life insurance can complicate property division in Maine

Whole life insurance policies are permanent policies that never expire (as long as you are up-to-date with paying the premiums). The same applies to indexed, variable, and universal life insurance policies.

These types of policies may complicate the process of property division in a divorce, as they have a cash value and must be considered as part of the overall “equitable distribution” of marital property under Maine law.

Of course, it is impossible to split a life insurance policy with your spouse, but it will need to be considered as part of the marital estate to be divided. Usually, a spouse will need to be reimbursed for his or her share of the policy from other marital assets during negotiations.

Alternatively, you can cash out the policy and split the proceeds or use it to cover legal fees incurred by the divorce proceedings or other debts – or each purchase a term life policy that is cheaper.

Life insurance can help cover parental responsibilities

After a divorce involving children, parenting and child support obligations continue until the children turn at least 18 in Maine – and you may also have spousal support obligations to your ex too.

These financial obligations can be significant and may place your children (and your ex) in jeopardy of financial hardship if something should happen to you or your ex-spouse.

Therefore, if your ex is not in a position to take out a policy, consider taking out a term life insurance policy in your ex-spouse’s name as part of the divorce settlement.

This will help to protect alimony payments, child support, and pension/retirement funds. It is especially important if you or your ex have experienced serious health issues or work in a dangerous occupation.

Bear in mind that to open a policy in your ex-spouse’s name requires his or her cooperation because access to medical records and personal information is required.

Can a divorce decree override a named beneficiary in a life insurance policy?

Sometimes, there are conflicts between designated beneficiaries in life insurance policies and those mandated by law to receive the benefit.

The designation of a beneficiary in your life insurance policy, for instance, can be overridden by a divorce decree in Maine. If, however, certain federal laws controlling the life insurance policy itself apply, they will override the divorce decree.

Certain types of life insurance policies, such as SGLI (Service members’ Group Life Insurance) policies and FEGLI (Federal Employees Group Life Insurance) are governed by federal law. So, regardless of a state court divorce decree obligating you to keep your ex-spouse as the beneficiary, if you named your parents as beneficiaries, they will receive the proceeds after death.

Most employer-provided life insurance plans in Maine are controlled by ERISA (The Employee Retirement Income Security Act). This federal law operates differently from other federal laws. Under ERISA, if a divorce decree meets the criteria of a qualified domestic relations order (QDRO), a deceased employee’s life insurance proceeds go to the person named in the decree – not the named beneficiary in the insurance policy.

Can an ex-spouse claim life insurance by “default”?

Sometimes, a couple gets divorced, but life insurance beneficiary designations are never updated. Effectively, the ex-spouse remains as the beneficiary and may get the proceeds by default.

Around half of the states in the U.S. have enacted laws that automatically remove a divorced spouse as a beneficiary in life insurance policies. This prevents an ex-spouse from claiming life insurance benefits if the policyholder dies after the divorce. The law was made to prevent conflicts and unnecessary litigation.

Maine is not one of the states with a revocation-on-divorce statute.  So, an ex-spouse who remains on the policy may have a valid claim for benefits after the insured’s death even if another beneficiary is named in the will.

It is critical to keep your beneficiary designations up to date on life insurance policies.  Contact the company that issued the policy and follow the procedures for changing beneficiaries. An ex-spouse may be re-designated as the beneficiary after a divorce in states with a revocation-on-divorce statute.

Contact a divorce lawyer in Maine today

As you have seen, life insurance rules are complex when it comes to divorce. The type of policy is crucial for understanding your rights and obligations. It can be difficult to recover life insurance benefit if it has already been divided, so it is best to understand your position with this early on in a divorce.

If you need assistance with understanding property division in Maine, call our office to schedule a time with a lawyer at The Maine Divorce Group for a strategy session.