Life Insurance and Divorce: What Happens to Your Policy?

How Divorce Affects Your Existing Life Insurance Policy

Divorce disrupts nearly every financial arrangement in your life, and life insurance is no exception. If you purchased a policy during your marriage — naming your spouse as beneficiary and paying premiums with joint income — that policy is now tangled in your divorce proceedings. What happens next depends on your state's laws, the type of policy you own, and what your divorce decree requires.

The first thing to understand is that divorce does not automatically cancel your life insurance. Your policy remains active as long as premiums are paid. However, the beneficiary designation, ownership, and cash value of that policy all become subjects for negotiation — or litigation — during the divorce process. Ignoring your life insurance during a divorce is one of the most expensive mistakes you can make.

If you currently have a policy and need to understand how beneficiary designations work before navigating the divorce process, read our guide on how to choose a life insurance beneficiary.

Changing Beneficiaries After Divorce

For most people, the most urgent action after finalizing a divorce is updating the beneficiary designation on every life insurance policy they own. Your ex-spouse does not automatically lose their status as beneficiary when the divorce is finalized — and in many cases, if you die without making a change, your ex-spouse collects the full death benefit.

About 27 states have enacted revocation-upon-divorce statutes that automatically revoke a former spouse's beneficiary designation when a divorce is finalized. The U.S. Supreme Court upheld the constitutionality of these statutes in Sveen v. Melin (2018). However, these laws have critical limitations. They typically do not apply to employer-sponsored group life insurance governed by ERISA (the Employee Retirement Income Security Act), because federal law preempts state law for those plans. The Supreme Court confirmed this federal preemption in Egelhoff v. Egelhoff (2001).

The safest approach is to never rely on automatic revocation. File a new beneficiary designation form with your insurer the moment your divorce is final. If your divorce decree requires your ex-spouse to remain as beneficiary — common when life insurance secures alimony or child support — you must comply with that requirement instead. Changing the beneficiary in violation of a court order can result in contempt charges and the proceeds being redirected to your ex-spouse after your death.

Court-Ordered Life Insurance: Securing Alimony and Child Support

Family courts in every state have the authority to order one or both spouses to maintain life insurance as part of a divorce settlement. The purpose is straightforward: if the paying spouse dies, the alimony or child support payments stop. Life insurance replaces that lost income stream and protects the financial security of the receiving spouse and children.

A typical court order specifies several requirements:

• Minimum death benefit amount. Usually calculated to cover the total remaining alimony or child support obligation. If you owe $3,000 per month in child support for 12 more years, the court might require a $400,000 to $500,000 policy.
• Named beneficiary. The decree will name the ex-spouse, the children, or a trust for the children as the required beneficiary.
• Duration of coverage. The requirement typically lasts until the support obligation ends — when children reach adulthood or when alimony terminates.
• Proof of coverage. Many decrees require annual proof that the policy is active, including the right for the beneficiary to contact the insurer directly.

If you are the spouse who depends on support payments, make sure the divorce decree is specific. Vague language like "shall maintain adequate life insurance" invites disputes. Push for exact dollar amounts, named beneficiaries, and a requirement that the insurer notify you if the policy is about to lapse. For couples evaluating what type of coverage works best, our comparison of term life vs. whole life insurance explains the key differences.

Community Property vs. Equitable Distribution States

How your life insurance is treated in a divorce depends heavily on whether you live in a community property state or an equitable distribution state. These two legal frameworks handle marital assets — including life insurance — very differently.

Community property states — Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin — treat most assets acquired during the marriage as equally owned by both spouses. A life insurance policy purchased during the marriage with marital funds is community property, meaning both spouses have a 50 percent ownership interest. The cash value is typically split equally, and the death benefit designation may require both spouses' agreement to change.

Equitable distribution states — the remaining 41 states and the District of Columbia — divide marital property based on what the court considers fair, which is not necessarily equal. A judge considers factors like the length of the marriage, each spouse's income and earning potential, contributions to the marriage, and custody arrangements. The cash value of a life insurance policy is part of this calculation, but one spouse may receive a larger share if the circumstances warrant it.

In both systems, a policy purchased before the marriage or with separate (non-marital) funds may be treated as separate property. However, if marital funds were used to pay any premiums during the marriage, a portion of the policy's value may be considered marital property. Tracing the source of premium payments is critical and often requires a forensic accountant in complex cases.

Splitting the Cash Value of a Permanent Policy

Term life insurance has no cash value, so there is nothing to divide — the only questions are who keeps the policy, who pays the premiums, and who is named as beneficiary. Permanent life insurance policies — whole life, universal life, variable life, and indexed universal life — accumulate cash value over time, and that cash value is a marital asset subject to division.

There are three common methods for dividing the cash value:

1. Surrender the policy. Cancel the policy, receive the cash surrender value, and split the proceeds. This is the simplest approach but eliminates the death benefit entirely. Surrender charges may apply if the policy is still within its surrender period, and any gains above the cost basis are taxable as ordinary income.
2. Transfer ownership. One spouse keeps the policy and compensates the other for their share of the cash value through other marital assets — for example, a larger share of the retirement accounts or equity in the home. Under IRC Section 1041, transfers between spouses incident to divorce are tax-free.
3. Withdraw or borrow against the cash value. The policy owner takes a withdrawal or loan to pay the other spouse their share. This keeps the policy in force but reduces the death benefit and cash value. Withdrawals above the cost basis and unpaid loans may trigger tax consequences.

Before making any decisions about splitting cash value, understand the tax implications. Our article on whether life insurance is taxable covers the rules in detail.

Who Should Own the Policy After Divorce?

Policy ownership is one of the most strategically important decisions in a divorce involving life insurance. The owner of a life insurance policy controls everything — they can change the beneficiary, borrow against the cash value, reduce the death benefit, or cancel the policy entirely. If your divorce decree requires your ex-spouse to maintain life insurance for your benefit, but your ex-spouse owns the policy, you are vulnerable.

There are three common ownership arrangements after divorce:

• The insured spouse retains ownership. This is the simplest arrangement but gives the receiving spouse no control. The insured could let the policy lapse or change the beneficiary in violation of the decree, and the other spouse may not find out until it is too late.
• The beneficiary spouse takes ownership. Transferring ownership to the ex-spouse who is the beneficiary provides the strongest protection. They control the policy, can verify it remains active, and cannot be blindsided by a cancellation. The insured spouse typically continues paying the premiums as part of the support obligation.
• A trust owns the policy. Placing the policy in a trust — often an irrevocable life insurance trust — removes it from both spouses' control. The trustee manages the policy according to the trust agreement, ensuring the death benefit reaches the intended beneficiaries. This is the most protective arrangement for children.

If you are currently married and want to understand how couples typically structure policy ownership, see our guide on life insurance for married couples.

Irrevocable Life Insurance Trusts (ILITs) and Divorce

An irrevocable life insurance trust (ILIT) is a specialized trust that owns a life insurance policy, removing it from the insured's taxable estate. ILITs are common in estate planning for high-net-worth individuals, and they create unique complications in divorce.

Because the trust — not either spouse — owns the policy, the life insurance inside an ILIT is generally not considered a marital asset. Neither spouse can unilaterally access the cash value, change the beneficiary, or surrender the policy. The trustee manages the policy according to the trust document.

However, divorce can still affect an ILIT in several ways:

• Funding with marital assets. If the ILIT was funded with community property or marital funds, a court may consider the premiums paid as marital contributions and factor the trust's value into the property division — even though the trust itself is technically not a marital asset.
• Beneficiary changes. If the ex-spouse is named as a beneficiary of the ILIT, changing this requires the trustee to modify the trust. Depending on state law and the trust's terms, this may involve decanting the trust into a new trust with different beneficiaries — a process that requires legal counsel.
• Ongoing premium obligations. Someone must continue paying premiums to keep the policy active. The divorce decree should specify who is responsible and what happens if payments stop.

If you and your spouse created an ILIT during your marriage, consult an estate planning attorney before the divorce is finalized. The trust document and your state's trust decanting laws will determine what changes are possible.

Your Ex-Spouse as Irrevocable Beneficiary

In some divorce settlements, the court designates the ex-spouse as an irrevocable beneficiary. Unlike a standard revocable designation — which the policy owner can change at any time — an irrevocable beneficiary cannot be removed without their written consent. This is a powerful legal tool that ensures the receiving spouse will collect the death benefit no matter what the insured spouse does after the divorce.

Courts use irrevocable beneficiary designations when there is a significant and long-term financial obligation. If you owe 15 years of alimony, the court may require an irrevocable designation to prevent you from changing the beneficiary to a new spouse or letting the policy lapse. This protects the financial interests of the receiving spouse and, in many cases, the children.

If you are the insured and your ex-spouse is an irrevocable beneficiary, understand what this means: you cannot change the beneficiary, you cannot surrender the policy, and you cannot take a loan or withdrawal against the cash value without your ex-spouse's approval. If you remarry and want your new spouse to receive the death benefit, you will need to purchase an entirely separate policy — the existing one belongs, in a practical sense, to your ex-spouse.

Irrevocable designations can be modified only through mutual written agreement or a court order. If your financial circumstances change dramatically — for example, your alimony obligation is reduced or terminated — you can petition the court to modify the decree, which may allow a change to the beneficiary designation. However, courts are reluctant to remove irrevocable beneficiary protections without compelling reasons.

Divorce Decree Requirements: What Your Agreement Should Include

A well-drafted divorce decree should address life insurance with the same precision it gives to child custody and property division. Vague or missing provisions create disputes that can last for years after the divorce is finalized. Here is what the life insurance section of your decree should include:

• Minimum coverage amount. Specify an exact dollar amount, not a vague reference to "adequate" or "reasonable" coverage.
• Named beneficiary. Identify who must be listed as beneficiary — ex-spouse, children, or a trust for the children — using full legal names.
• Type of designation. Specify whether the beneficiary designation should be revocable or irrevocable.
• Policy ownership. State who owns the policy and who is responsible for paying premiums.
• Duration. Define how long the life insurance obligation lasts — until children turn 18, until alimony ends, or until a specific date.
• Verification rights. Require annual proof of coverage and grant the beneficiary the right to contact the insurer to verify the policy is active.
• Lapse notification. Require the insurer to notify the beneficiary spouse if the policy is in danger of lapsing due to nonpayment.
• Remedies for noncompliance. Spell out what happens if the insured spouse fails to maintain coverage — contempt of court, reimbursement of premiums if the other spouse pays them, or automatic liens on assets.

Have your divorce attorney review the life insurance provisions with a fine-tooth comb. An overlooked detail in the decree can cost tens or hundreds of thousands of dollars down the road.

Getting New Life Insurance After Divorce

Whether you lost coverage because your ex-spouse owned the policy, because a joint policy was surrendered in the settlement, or because you simply need coverage that is independent of your divorce obligations, getting a new life insurance policy after divorce is both possible and often necessary.

Divorce itself does not affect your insurability. Insurers evaluate your health, age, lifestyle, and financial situation — not your marital status. However, the financial upheaval of divorce can indirectly impact your application. If your income has dropped, you may qualify for less coverage. If the stress of divorce has led to new health issues, prescriptions, or weight changes, your premiums may be higher than before.

Here are key considerations when shopping for post-divorce coverage:

• Reassess your coverage needs. Your financial obligations have changed. Factor in child support, alimony, mortgage, debts, and the cost of raising your children as a single parent.
• Choose the right policy type. Term life insurance is usually the most affordable way to get substantial coverage quickly. A 20-year term policy can cover your obligations until your children are independent. Permanent insurance may make sense if you need lifelong coverage or want to build cash value for retirement.
• Update your beneficiaries thoughtfully. Name your children, a trust for your children, or another loved one. Add a contingent beneficiary. Use full legal names and specify percentages.
• Apply as soon as possible. Every year you wait, your premiums increase due to age. If you have a gap in coverage and something happens, your dependents are unprotected.
• Compare quotes from multiple insurers. Rates vary significantly. Get quotes from at least three to five companies to ensure you are getting competitive pricing for your health profile.

Employer-Sponsored Life Insurance and Divorce

Employer-provided group life insurance adds another layer of complexity to divorce. Most employer plans are governed by ERISA, which means federal law — not state law — controls the beneficiary designation. This has a critical implication: state revocation-upon-divorce statutes do not apply to ERISA plans.

In the landmark case Kennedy v. Plan Administrator for DuPont Savings (2009), the Supreme Court ruled that a beneficiary designation on an ERISA-governed plan must be followed as written, even when a divorce decree waived the ex-spouse's rights. The ex-wife had signed a divorce decree waiving all claims to her ex-husband's benefits, but the plan administrator paid her anyway because she was still the named beneficiary on the plan form. The Court upheld that payment.

The lesson is clear: if you have employer-sponsored life insurance, you must change the beneficiary designation through your employer's benefits portal or HR department immediately after your divorce. Do not assume the divorce decree or a state law will override the form on file with the plan administrator.

Tax Implications of Life Insurance in Divorce

Life insurance transactions incident to divorce receive favorable tax treatment under IRC Section 1041, which provides that transfers of property between spouses (or former spouses if incident to divorce) are treated as gifts and are not taxable events. This means transferring ownership of a life insurance policy to your ex-spouse as part of the divorce settlement does not trigger income tax or gift tax.

However, some transactions do have tax consequences:

• Surrendering a policy. If you surrender a permanent policy to split the cash value, any gain above your cost basis (total premiums paid minus dividends received) is taxable as ordinary income.
• Cash value withdrawals. Withdrawals up to your cost basis are tax-free. Anything above that is taxed as ordinary income.
• Policy loans. Loans against cash value are not taxable as long as the policy stays in force. If the policy lapses or is surrendered with an outstanding loan, the loan amount may be treated as taxable income.
• Premium payments by the non-owner. If your divorce decree requires you to pay premiums on a policy you no longer own, those payments are generally treated as alimony (if the decree specifies this) and may be tax-deductible for divorces finalized before 2019. For divorces after 2018, alimony is no longer deductible under the Tax Cuts and Jobs Act.

Step-by-Step Checklist: Life Insurance During Divorce

Use this checklist to make sure nothing falls through the cracks:

1. Inventory all policies. Gather details on every life insurance policy either spouse owns — including employer-sponsored plans, individual policies, and any policies inside trusts. Note the death benefit, cash value, owner, insured, beneficiary, and premium amount.
2. Determine what the decree requires. Work with your attorney to include specific life insurance provisions in the divorce decree covering all eight elements listed above.
3. Update beneficiary designations. File new beneficiary designation forms with every insurer and employer plan as soon as the divorce is final. Do not rely on state revocation statutes.
4. Transfer ownership if needed. If the decree requires the beneficiary spouse to own the policy, complete the ownership transfer with the insurer.
5. Address the cash value. Decide whether to surrender, transfer, or offset the cash value of any permanent policies. Consult a tax professional before making this decision.
6. Purchase new coverage. If you need additional coverage — either to fulfill decree requirements or to protect your new household — apply for a new policy as soon as possible.
7. Set up verification. If you are the beneficiary spouse, establish a system to verify coverage annually. Contact the insurer to request lapse notifications.
8. Review your estate plan. Update your will, trusts, powers of attorney, and healthcare directives to reflect your new circumstances. Make sure beneficiary designations on all financial accounts are consistent with your updated estate plan.

The Bottom Line

Life insurance is one of the most overlooked financial assets in divorce — and one of the most consequential. An outdated beneficiary designation can send hundreds of thousands of dollars to the wrong person. A poorly drafted decree can leave your children unprotected if the paying parent dies. A failure to address cash value can cost you your fair share of marital assets.

Start by inventorying every policy. Work with your divorce attorney to draft specific, enforceable life insurance provisions in your decree. Update every beneficiary designation the day your divorce is final — do not wait and do not assume any automatic revocation will protect you. If you need new coverage, apply immediately while you are still young and healthy enough to qualify for competitive rates.

Divorce is already one of the most stressful events in life. Taking the time to handle your life insurance correctly during the process protects you and your children from financial harm long after the paperwork is signed. If your situation involves significant assets, an ILIT, or complex support obligations, work with both a divorce attorney and an estate planning attorney to make sure every detail is covered.