The Valuation of Life Insurance in a Divorce in Wisconsin

by Wayne Thomas
The value of life insurance is typically based on the cash surrender amount.

The value of life insurance is typically based on the cash surrender amount.

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Placing a value on property owned by a couple is an important component of the property division phase of a Wisconsin divorce. While some assets, such as cash and banks accounts, are relatively easy when it comes to placing dollar figures on them, other assets are more confusing and can change value over time. Knowing how the court looks at life insurance policies will help ensure that these assets are valued correctly during your divorce proceedings.

Community Property

Wisconsin law presumes that all property and debts in existence at the time of the divorce are joint and mutual and subject to division during divorce -- unless the asset was a direct gift to a spouse from someone outside the marriage or an inheritance. Spouses are deemed co-owners of their "community property," and the court will attempt to reach a division that is as close to even as possible. When some assets are not easily capable of division, including life insurance policies, other assets such as cash, can be helpful in offsetting the award.

Cash Surrender Value

In determining the value of a community property asset, the court is required to use the asset's "fair market value" at the time of divorce. Fair market value refers to the amount that a willing buyer would pay in an ordinary transaction. When it comes to life insurance policies, Wisconsin calculates fair market value as the cash surrender value of the policy. Cash surrender value is the amount you would receive upon early termination of the policy and differs from the death benefit, which is the amount you would receive if the policy pays out upon the death of the insured.

Type of Insurance

It is important to note that not all life insurance policies have a cash surrender value. Term life insurance policies, for example, often have a sizable death benefit, but do not build equity and thus would have a zero cash value at the time of divorce. Although this can be confusing, each party is expected to list and correctly value all policies in the original divorce paperwork. This information is then verified through a process known as "discovery." In the discovery phase of a divorce, each spouse or their attorneys requests certain authorizations, which give them the authority to contact the insurance company and verify that the information supplied is correct.

Updating the Figure

It is not uncommon for the discovery phase of a divorce to take several months. If the parties cannot reach a settlement, scheduling and preparing for trial can cause further delays to the divorce. For that reason, the divorcing parties will need to keep each other and the court updated as to any changes in the cash value. This will ensure that the court has the correct value for all life insurance policies on the date of the divorce pursuant to Wisconsin law.