Cash Value Life Insurance Owned Jointly With Non-Filing Spouse

The cash value of a life insurance contract may be exempt under Florida law. Cash value life insurance is exempt only to the extent of life insurance owned by the debtor insuring his own life. The exemption does not hinge on whether to debtor, his estate, or some other person is the beneficiary of the insurance policy. If a debtor purchases life insurance on the life of another person, such as his spouse, the cash value of such policy is not exempt under Florida law. A prospective bankruptcy client (husband) stated that he and his non-filing spouse own two separate life insurance policies with cash value; one policy insures the debtor’s life and the other policy insures the life of the non-filing spouse. The two policies have equal death benefits and cash value. The debtor ask is the cash value of each policy is exempt or is non-exempt property which will be taken by the bankruptcy trustee.

The debtor has a 50% interest in the cash value of both life insurance policies. The debtor’s 50% interest in the cash value of the policy insuring his own life is exempt. The wife’s interest in either policy is not part of the debtor’s bankruptcy estate. The cash value of the policy insuring his spouse is not exempt because it does not insure the debtor’s own life.. As the debtor owns only 50% of the cash value of the policy on his wife only 50% of the value is part of his bankruptcy estate. However, the debtor could argue that the cash value of the policy on his wife, owned jointly with his wife, is tenants by entireties property. If he and his wife have no joint unsecured debts all of the debtor’s tenants by entireties property is exempt in Florida. I am not aware of any case which exempted cash value life insurance as a T by E asset.

posted by Jonathan Alper, bankruptcy and asset protection attorney, Orlando, Florida