Case Updates – ED and Life Insurance
By Crago v. Crago – Mecklenburg County
During the parties’ marriage, they both liquidated 401(k) accounts and pension plans due to unemployment. Husband went back to work, and Wife enrolled in school. A few years later, the parties opened up a joint account where both Husband and Wife would draw money, and Wife would sometimes withdraw funds to transfer to her separate account.
Wife had children from a previous marriage. Prior to this marriage, that ex-husband took out a $1M life insurance policy and named Wife the beneficiary. Wife partially paid the insurance premiums with funds received from Husband. That ex-husband died, and 4 months later the parties separated.
The trial court determined the insurance proceeds were marital property, and also divided the property 80% to Wife and 20% to Husband. Wife’s claim for alimony was denied. Wife appeals, primarily the ruling that the life insurance proceeds were marital property.
The COA identified two approaching for determining “marital” and “separate” property: the Mechanistic approach and the Analytic approach. The Mechanistic approach looks towards the statutory definitions. The Analytic approach determines what the award was intended to replace, focusing on the purpose of the compensation rather than the statutory definitions. While a matter of first impression with regard to life insurance proceeds, Wife argues that the funds were intended to benefit her children, and so should be distributed to her.
In this case, the court rejected the Analytic approach. The Husband’s funds had paid part of the premiums, thus paid in part with marital funds. The claim for death arose prior to the parties’ separation and the proceeds paid prior to the separation. Therefore, the court did not abuse it’s discretion in labeling the life insurance proceeds as “marital property”.
The other major reaffirmation in this case is with regard to an “ability to pay” argument on distributive awards. The trial court ordered a $120,000 distributive award. In this case, though, Wife had $841,784 in an account as of the date of separation. The trial court reasoned she had no less than $200,000 still remaining, based on her monthly expenses.