Estate Tax Impact of Life Insurance Required by Divorce

Life insurance often assumes an important role in a marital settlement agreement or divorce decree. One party may be required to maintain for life a policy insuring himself or herself that names the former spouse as beneficiary. Alternatively, the party may be required to keep life insurance in force as security for alimony or other payments to the former spouse. Depending on the structure of the obligation to maintain insurance, the policy proceeds may be subject to tax in the insured’s estate for federal estate tax purposes.

This article discusses the steps to consider in order to anticipate the federal estate tax treatment of that insurance policy and obligation.