Indeed, transfers incident to divorce can be made without any tax consequence.
However, distributions from tax deferred vehicles will be subject to tax even when used to settle the marital assets.
That is, when a spouse transfers a tax deferred account there is not tax consequence; but there may be income tax on distributions from the account. This is true for retirement accounts and insurance accounts.
Basically, transferring ownership of the policy is not subject to tax under section 1041; but gain on cashing in the policy is not excluded from tax under section 1041.
This may not be important if the premiums paid are more than the cash value accrued so that there is no gain realized on surrender of the policy.
The owner of the policy at the time of surrender will be responsible for any income tax on the gain.
Transferring ownership of the policy rather than transferring the proceeds from surrender is very likely more tax advantaged in almost all circumstances; but, as always, only a practitioner that has all of the facts and circumstances can make an informed opinion for their client, the taxpayer.
Please ask if you need clarification.
Although my life insurance license has been expired for a few years now and I am not an attorney, it does seem proper for an ex-spouse to own a policy on the other ex-spouse and does happen (at least in my state).
There are obvious circumstances, such as receipt of alimony or support that would be a direct economic interest and thereby provide the insurable interest.
The precise answer will lie in the specifics of state law on insurable interest when there is not a direct economic interest. It may even depend if the transfer is done prior to the dissolution as most states do allow an ex-spouse to continue to own a policy that was purchased and owned during the marriage.
I hope this helps to clarify even though that aspect is a matter of state law whic a local attorney will need to confirm.