SINGAPORE – A 47-year-old woman had a double stroke and received over $450,000 in critical illness insurance payout, but this sparked a dispute during her divorce as her estranged husband wanted a share of this sum.
The 49-year-old man argued that as he was the main breadwinner of the family, he should have a cut of the money because his income was probably used to pay for the policies’ premiums during the marriage.
The break-up was so bitter that it did not matter to him that the payout was supposed to support his former wife’s recovery after she was hit by severe strokes.
In most divorces, life insurance policies held by couples are usually considered as matrimonial assets, with their cash values added to the pool for division.
But an insurance payout is different: The High Court ruled that the man could not touch his former wife’s payout, as it was compensation for her long-term care and treatment, not income.
Such payouts are therefore not added to the matrimonial pool, because neither spouse can claim to have earned that sum through their efforts during the marriage.
This case should also serve as a wake-up call for those who treat insurance as optional in their financial planning – without it, they risk serious financial hardship if calamity strikes.
In this case, the couple have two teenage children together. Each also has two adult children from their previous marriages.
The husband has his own business, while the wife was earning less than $2,000 monthly running a drinks stall in a primary school canteen. But she had decent cash savings of over $400,000, a $250,000 life insurance policy and a $565,000 HDB flat from her previous marriage with her late husband, who also left her some inheritance.
Another reason for her decent savings was that she managed her current husband’s income – he had only about $4,000 in his own bank account despite owning two companies.
The insurance claim
The wife suffered her first stroke in 2017 and had to give up her drinks stall the following year as her health deteriorated.
Her second stroke happened around the time of her divorce in 2020. This time, the effects were debilitating, leaving her unable to walk.
As a result of her condition, four of her critical illness policies paid out more than $450,000, while a fifth pays her $1,200 a month for the rest of her life.
The husband argued that the payouts should be added to the matrimonial pool because they were not intended to compensate the wife for her disability but were instead meant to provide a general income to protect and provide for her family due to her condition.
He added that as the wife’s income as a canteen stallholder was low, the bulk of the premiums for those policies was contributed by him.
But the wife countered that the insurance payouts were not profits of an investment, but meant to provide financial stability for the policyholder during a genuine health crisis.
She said that since her claims were approved, she had been using the funds for medical care and living expenses, as she could no longer work.
Moreover, as she was also paid a monthly sum of $1,200, the Family Justice Court considered this sufficient and did not award her any spousal maintenance.
Senior High Court Judge Tan Siong Thye noted that the payouts were meant to cover the wife’s medical expenses and other costs relating to her treatment or condition. He said the husband’s argument – that the payout was meant to cover the family’s expenses due to her condition – had no merit, as it contradicted his own claim to be the family’s main and substantial breadwinner who did not need the wife’s contributions.
The judge added: “The manner in which the parties had organised their economic affairs during the marriage made it unlikely that they had the intention that the (insurance) payouts would be used for the wife’s missing income so as to sustain the family if she became critically ill.”
He also dismissed the husband’s allegations that the wife had deliberately tried to “launder” matrimonial assets by spending on medical insurance so that the payouts would automatically be excluded from sharing.
He said such arguments could work only if the husband could show bad faith on the wife’s part – for instance, evidence that she had taken out the critical illness policies knowing she would be hit by severe strokes soon after.
But as the husband could not prove that the wife had bought the policies because she could predict her health conditions, the payouts would not be added to the matrimonial pool.
The court noted that it is common practice to treat insurance policies purchased by either spouse during the marriage as matrimonial assets.
If the wife had not suffered a critical illness and the policies were simply held as investments to be encashed for profit in the future, they would likely have been considered matrimonial assets to be divided.
But as the policies were triggered by an event and the funds were meant for her long-term medical needs, the husband would not get a share of the payout.
Share of matrimonial assets
The wife used her fully paid-up $565,000 HDB flat from her previous marriage as the matrimonial home for her second marriage.
As a result, the court chose to divide the flat separately from the couple’s other assets, which amounted to about $1.16 million.
For the flat, the wife was given 100 per cent credit for it but the final division hinged on the couple’s non-financial contributions.
The court noted that the marriage was one where the husband left it largely to the wife to run the household while he was busy at work.
The wife used to work and had delegated caregiving duties for their two teenage children to her adult sons from her previous marriage, especially after she suffered a stroke.
The husband had contributed to the household by taking their children to school and providing financially for the family as the sole breadwinner.
As a result, the husband was given a higher score of 55 per cent for indirect contributions, while the wife got a score of 45 per cent.
When considered together with her 100 per cent share of the house, she received 72.5 per cent of the flat, or about $410,000, while the husband received 27.5 per cent, or about $155,000.
As for the rest of the assets, the court ruled that both parties had equal contributions in accumulating their non-property assets.
Using the same indirect contributions score, the final outcome was that the husband received a 52.5 per cent share, or about $610,000, while the wife received 47.5 per cent, or about $550,000.
When added together, it meant the wife’s total share of the matrimonial assets amounted to about $960,000, while the husband received $765,000.
If the wife did not have the foresight to insure herself, she might not have had enough for her long-term care, because her share of the assets comprised her flat and mostly non-liquid assets such as her life insurance policies.
But with the insurance payouts, she has cash of $450,000, as well as monthly payouts of $1,200.
So the lesson here is that it is prudent to plan for insurance coverage, especially for medical care, so that you need not worry about money when you are unwell.
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