Community Property and Life Insurance: Navigating Beneficiary Claims

Life Insurance Proceeds and Community Property

We often see claims that a spouse has an interest in life insurance proceeds, even if they are not the designated beneficiary. These claims most often arise in community property states

Understanding why community property laws impact life insurance proceeds is important for couples in community property states. These laws hold that assets obtained during a marriage, including life insurance policies, are owned by both spouses. This means, when the insured dies, the surviving spouse may be entitled to at least some of the life insurance proceeds. But generally only if state law applies. Federally regulated policies - ERISA, FEGLI, SGLI, and VGLI - typically preempt state law rights.

Community property laws vary between states, making it essential for couples to understand their state's specific laws and if state law applies . An experienced life insurance lawyer will help you review these issues.

Community property laws apply in nine states, including Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. In these states, income earned and property purchased during the marriage are equally owned by both spouses. Life insurance policies purchased with community funds are subject to community property laws, but separate property and some exceptions may not be.

Some common issues with community property claims on life insurance include delayed or denied claims, disputes between primary and secondary beneficiaries, and complications arising from divorce. To avoid such issues, policyholders should regularly review and update their beneficiary designations and seek legal advice in case of divorce or other changes in marital status.

Community Property Claim on Life Insurance

If a spouse dies and the life insurance policy was purchased with community funds, the surviving spouse may have a community property claim on the policy proceeds. In some cases, community property laws may trump beneficiary designation on a life insurance policy.

It's important to note that community property laws can be complex and vary by state. It's recommended to consult with a legal professional for guidance on community property and life insurance.

Community Property Marital Claim on Life Insurance in Various States

Arizona 

Arizona, being a community property state, considers life insurance policies bought with community funds as community property. This means if one spouse passes away, the other spouse might get half of the proceeds when community funds are used. But if the policy was bought before marriage or with separate funds, it's seen as separate property and not subject to community property laws.

California

In California, life insurance policies bought during the marriage with community funds is considered community property. In the event of the death of one spouse, the surviving spouse may get half of the proceeds. However, if the policy was purchased before the marriage or with separate funds, it is considered separate property and not subject to community property laws.

Idaho

 In Idaho, life insurance policies bought during the marriage with community funds is considered community property. In the event of the death of one spouse, the surviving spouse may receive half of the proceeds. However, if the policy was purchased before the marriage or with separate funds, it is considered separate property and not subject to community property laws.

Louisiana

Louisiana is a unique community property state because it has both community property and separate property laws. In Louisiana, life insurance policies bought during the marriage with community funds is considered community property. In the event of the death of one spouse, the surviving spouse may get half of the proceeds. However, if the policy was purchased before the marriage or with separate funds, it is considered separate property and not subject to community property laws.

Nevada

 In Nevada, life insurance policies bought during the marriage with community funds is considered community property. In the event of the death of one spouse, the surviving spouse may receive half of the proceeds. However, if the policy was purchased before the marriage or with separate funds, it is considered separate property and not subject to community property laws.

New Mexico

 In New Mexico, life insurance policies bought during the marriage with community funds is considered community property. In the event of the death of one spouse, the surviving spouse may receive half of the proceeds. However, if the policy was purchased before the marriage or with separate funds, it is considered separate property and not subject to community property laws.

Texas

 In Texas, life insurance policies bought during the marriage with community funds is considered community property. In the event of the death of one spouse, the surviving spouse may receive half of the proceeds. However, if the policy was purchased before the marriage or with separate funds, it is considered separate property and not subject to community property laws.

Washington

 In Washington, life insurance policies bought during the marriage with community funds is considered community property. In the event of the death of one spouse, the surviving spouse may get half of the proceeds. However, if the policy was purchased before the marriage or with separate funds, it is considered separate property and not subject to community property laws.

Wisconsin

 In Wisconsin, life insurance policies bought during the marriage with community funds is considered community property. In the event of the death of one spouse, the surviving spouse may get half of the proceeds. However, if the policy was purchased before the marriage or with separate funds, it is considered separate property and not subject to community property laws.

Protecting Beneficiary Rights to Life Insurance Proceeds

We know that community property laws can be confusing when it comes to life insurance proceeds. In general, life insurance policies bought with community funds in a community property state are considered community property. This means that when the insured spouse dies, the surviving spouse may be entitled to half of the proceeds. However, if a policy was purchased before marriage or with separate funds, it's considered separate property and not subject to community property law.

Term life insurance and permanent life insurance both can have their proceeds affected by community property laws. When the insured’s spouse is named beneficiary, they might get half of the proceeds, while the other half could be split among other named beneficiaries or in accordance with a property settlement agreement.

It's important to remember that an experienced life insurance lawyer can help with life insurance claims and understanding family law aspects of insurance proceeds. In some cases, a spouse may have a claim on a portion of the proceeds, even if they aren't the named beneficiary.

In states where community property and life insurance laws apply, assets acquired during the marriage, including life insurance money, are usually owned by both spouses. If the insured spouse dies and premiums were paid using community funds, the surviving spouse may be entitled to half of the life insurance proceeds.

In conclusion, community property law can impact life insurance proceeds, and it's essential to consult with a life insurance lawyer for guidance on your specific situation. Understanding the rules of your state and how they apply to your life insurance policies will ensure that the right beneficiaries receive the appropriate portion of the proceeds.

Contact an Experienced Life Insurance Lawyer

Don't leave your life insurance beneficiary rights to chance!  If you live in a community property state, protect your interests and ensure a fair outcome by consulting a lawyer experienced in evaluating life insurance beneficiary contests and disputes.  Call lawyer J. Michael Young at (800) 323-1857.