Divorce orders often include that one or both parties obtain or maintain term life insurance for the benefit of the children.. or the ex-spouse. This is particularly true when there are financial orders for alimony and/or child support. The idea is to provide a financial cushion in the event that the payor dies, thereby making the weekly support order difficult to enforce. Most payers have no issue with carrying life insurance for the benefit of the children. They want to leave money for the support, education and all around well being of their children if they should die before their children reach maturity. Most payors have a big issue with carrying life insurance for the benefit of their ex-spouse. They usually don’t want to pay alimony when they are alive, let alone after they pass.
Arguments for and against having life insurance for alimony.
Although an order for life insurance by the court is not automatic, it is usually included in negotiations for settlement. It is preferable that the order be specific enough to cover concerns of both the payor and the payee. If the order results from a negotiated or mediated agreement, the people responsible for the language of the order should take care to be specific. If the order results from the court after trial, the relief requested by the parties should be specific.
What to include in a life insurance divorce court order
Availability: A court can’t order a person who is not currently covered to obtain life insurance as they may not qualify for such insurance or it could be cost prohibitive. What the court can do is order that person to apply for such insurance. But it is not enough to say they have to apply. It would be better to say they have to use good faith efforts to obtain life insurance. It would even be better to state how often they need to apply and that they have to provide proof of both application and rejection or acceptance. This addresses the concerns of the payee.
Cost: it would do good to strive for a specific coverage amount for a specific period but include language that addresses the cost factor. An example would be for a person to be required to obtain coverage for X or as close to X as possible with the annual premium not to exceed Y. This addresses the concerns of the payor.
Proof: Many payees wonder if the payor will follow through with the life insurance coverage requirement, especially if a new spouse or children enter the picture. It is wise to include language mandating that the obligor be required to provide proof of coverage yearly or upon reasonable request. It is even better to require that the payee be listed as an interested party to be notified by the insurance company if and when the coverage lapses. This will allow the payee to address the matter sooner rather than later.
Changes: For the payor, it is worth thinking about automatic reductions built into the order. It is reasonable and likely that as time goes on and support payments are made, the overall amount of future support due goes down. Some thought and calculations can result in an agreed upon step down in coverage amount every few years or so. This would allow the payor to reduce coverage or allocate some of the coverage amount to other family members.
Compliance: In the event the payor does not comply or maintain compliance then no insurance will be due upon death. It will be of assistance to include a provision that gives the payee a claim as a preferred creditor against the estate of the payor for the amount of coverage not received.
Funds used for stated purpose: It is often a worry of the payor that insurance proceeds meant for the children will not be used for the children and instead be used for the ex-spouse. As the surviving parent, the ex-spouse will most likely gain control of any proceeds left to minor children. A third party trustee can be negotiated and ordered if both parties agree. This usually goes both ways (both parties have life insurance obligations and both want to name third parties). It is unlikely there will be an agreement to a third party if only one party is paying. It is unlikely there will be an order for a third party from the court.
The above list addresses the most common concerns and issues dealing with life insurance but is not an exhaustive list. The suggestions are meant to alert the reader to the complexity of the issue of life insurance and offer some thoughts as to how some concerns may be addressed. It is best to seek the advice of a divorce attorney when crafting divorce degrees, legal agreements or seeking relief from the court.
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