Pennsylvania’s Superior Court, in a precedential opinion, held life insurance death benefits are “gifts” and are therefore not marital property for purposes of equitable distribution.
Equitable distribution is a process in which marital property is distributed equitably in a divorce proceeding. A court will only engage in equitable distribution if spouses are unable to agree on a property settlement and how to divide their estate.
Equitable distribution only applies to marital property, which is all property gained during the marriage. However, it does not include property gained during marriage through gifts.
Assets can either be separate property or marital property.
Separate property is property that belongs to one spouse, and gifts will often be categorized as ‘separate property.’ Gifts given to one spouse by a third party are considered that spouse’s separate property. Gifts can be used to transfer wealth through generations in a family, as gifts of cash or investments, as assets in a trust, or other types of inheritances. Many times, if gifts are commingled with marital assets, then the gifts may be considered marital property during equitable distribution.
In Goodwin v. Goodwin, a husband and wife were married for decades. Neither party was married before, and while there were no children born into the marriage, the wife had a son to which the husband was not the biological father and did not adopt. In 2009, the wife filed for divorce. The couple reconciled, however the wife never withdrew this divorce action. Her son died in January 2017, and she was the sole, primary beneficiary on her son’s insurance. It was not until April of 2017, that the wife decided to move forward with the divorce proceedings and reinstated her divorce complaint from 2009.
The question presented to the court was whether the son’s life insurance proceeds and IRA benefits, which were solely received by the wife, were marital property.
Pennsylvania’s Superior Court ruled these proceeds were not marital property, but a gift under Pennsylvania’s Divorce Code. In support of their finding, the court highlighted that the son was not a child from the marriage, the son did not name anyone – let alone his step-father – as a secondary beneficiary, and the wife never put the funds into a commingled account.
Goodwin v. Goodwin’s ruling set a precedent in this process since there is little law in Pennsylvania discussing whether life insurance death benefits, in general, are marital property.
As part of a divorce, spouses will have to divide their marital property, and there are many issues and disagreements that may likely arise, which is why it is advisable to discuss any questions or concerns with your legal counsel, or with one of the attorney’s from KingSpry’s Family Law Department.
Lehigh Valley Family Law is a publication of KingSpry’s Family Law Practice Group. It is meant to be informational and does not constitute legal advice.