Divorce Insurance – Protection or Just Another Asset?

In the September 13, 2010 issue of Time magazine, there is an article by Belinda Luscombe which talks about a new form of insurance being offered by SafeGuard Marketing Management Inc., a wholly-owned subsidiary of SafeGuard Guaranty Corporation Operations Inc. called Wedlock Divorce Insurance. Just as life insurance is paid out in the event of the death of the insured, the proceeds from a Wedlock Divorce Insurance policy are paid in the event of the end of the insured’s marriage by divorce. Each policy can pay up to $250,000 to the insured in the event his or her marriage ends in divorce.

The purpose of the policy, according to the website for the product, is to provide the insured with financial assistance after a marriage ends in divorce. The money can be used to help recoup the costs for attorney fees or to just help someone get back on his or her feet after the divorce.

In some ways this policy is similar to other types of casualty insurance, such as life insurance or home owner’s insurance. Like life insurance, premiums are paid on a monthly basis and the cost for the premiums depends upon the amount of coverage that the person wants. Each unit of coverage of divorce insurance costs $15.99 per month; a unit is $1,250 worth of coverage. As I understand it, if a person wanted $12,500 worth of coverage, the payments would be $159.90 per month.

There is a waiting period of four years, meaning at least four years must pass between the time the policy is obtained and the time the marriage ends in divorce. With an “Accelerated Maturity Rider”, that waiting period can be reduced to three years. While the monthly premiums never increase, each unit of coverage increases in value by $250 annually after the waiting period has elapsed increasing the benefit without any increase in annual premium. A “Return of Premium Rider” guarantees the return of the premiums (less State premium taxes paid) if the marriage ends in divorce before the waiting period has ended.

A claim is filed to obtain the proceeds from the policy once a divorce decree has been entered, just as a death certificate is required to file a claim under a life insurance policy.

While this may seem a very good way for people to provide for the end of their marriage, the purchase of such a policy during the marriage, may create an asset that is divided as part of the marital estate. Either a court may consider it to be marital property subject to division as part of a divorce action or the court is going to consider it one party’s separate property, which may be a factor in how the court divides the marital estate. It may be an asset that came into being during the course of the parties’ marriage, which might make it an asset subject to division as part of a divorce. With a term life insurance policy, it is not known when the beneficiary is going to receive the proceeds from the insurance policy. However, with the divorce insurance, the parties and the court know that once the decree is filed, the insured can file his or her claim against the divorce insurance policy and receive the appropriate proceeds. So, its value for divorce purposes will be readily ascertainable.

Since such policies are not available in Pennsylvania, I doubt I am going to run across any cases explaining how such policies are to be treated; however, colleagues of mine in other jurisdictions may encounter these policies.

It is important to remember that, regardless of who paid for the wedding, who paid for the divorce insurance, and who paid the legal fees for the divorce, the insured on one of these Wedlock policies must be one of the people married and only that person can receive the proceeds. So, parents who thought that their darling child should never have married that louse may not be able to use such a policy as a way to prove they were right.