Characterizing Life And Casualty Insurance – As I have mentioned in previous blogs, there is a method to which all property –including income from various sources – is characterized as either separate or community property.
Last week, I focused a blog on characterizing work income. Today, it is Life and Casualty Insurance.
I find the characterization of life insurance policies interesting because unlike work income, whether or not a policy is subject to characterization depends on whether it was purchased by an individual or provided by an employer. From there, many of the same rules we have discussed still apply.
Here is what the Texas Family Code says.
Privately purchased – Whole life insurance policies, and even term policies that do not build up cash value, purchased by an individual are subject to characterization. Characterization is determined by the time and manner in which it was acquired – in other words, the date the policy was issued. If the policy was issued before marriage or after a marriage is dissolved, it is separate property.
An insurance policy acquired during marriage is considered community property, though this presumption can be overcome if a spouse can prove the manner in which the policy was acquired (i.e. gift).
Employer provided – Here is where things get tricky. Employer provided policies may or may not be able to be characterized as community property depending on how they are set up. See below.
- Federal-employee policies – Provided as part of a federal employee benefit plan, and may or may not be preempted by federal law from being characterized as community property. Per the Texas Family Code, the test for preemption is whether characterizing the benefit would conflict with the express terms of federal law and whether dividing the benefit would harm the objectives of the federal program.
- ERISA policies – These are policies governed by the Employee Retirement Income Security Act. They cannot be characterized as community property under any conditions.
- Nonfederal and non-ERISA policies – Employer provided policies that are not a part of a preempted federal or ERISA employee benefit plan can be characterized as either separate or community property based on the date the policy was issued.
Again, here are two links to previous blogs to help provide some background on the methods behind the characterization of property. The first goes back to our blogs on inception of title and tracing. The second is last week’s blog on characterization of work income.
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