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Understanding Life Insurance in Divorce

As a husband and father of young children, I want to insure that my wife and children will be provided for if something happens to me. To provide for them, I have purchased life insurance, as many people in my position will do. I am occasionally surprised, though, that parties going through a divorce are often reluctant to obtain or maintain life insurance, especially when there are support obligations involved. The key to understanding life insurance in divorce is to consider why life insurance might be obtained in other contexts.

Many people, when they are first married or at some point, and especially when they start having children, obtain life insurance policies. While there are various forms of life insurance, the fact of the matter is that a primary reason people obtain life insurance is to provide for loved one if something were to happen to them. Whether one parent works or both parents work, life insurance replaces lost income that is necessary for support and to cover costs incurred by the absence of the other parent.

Imagine for yourself how your children would get by if your income was suddenly gone. Would you not what to provide for them with life insurance? What if you are a stay-at-home parent and suddenly die? How will the other parent continue to provide for the children while working? Who will care for the children while he or she is working? This is why we get life insurance: it is a relatively inexpensive way to make funds available when one parent dies.

It is the same in the divorce context, though divorced or divorcing parties may no longer consider each other a “loved one”. If you have children together, you still have loved ones who will be affected by your untimely demise.

If child support or maintenance is ordered, your ex-spouse will be dependent upon your continued contributions in order to meet the basic living expenses for themselves and, more importantly, your children. While you may no longer have the same commitment to your ex-spouse that you once had, your children will be wholly dependent on him or her if you are gone. If something happens to you, your ex-spouse, and therefore your children, may be left in a very difficult situation.

For this reason, among others, Courts will often order the obligor parent (the one paying support) to maintain some level of life insurance on himself or herself. When negotiating settlement agreements, however, parties are often reluctant to agree to maintain or obtain life insurance. The reason I often hear is that it will benefit the former spouse, and divorced or divorcing parties often do not want to help “the bum” or [fill in the blank] out. Unlike the parties to a good marriage, trust is in short supply for most divorcing couples.

While it may be true that life insurance will help your ex-spouse, it will also help your children. On the other hand, if you leave your ex-spouse in the lurch, you also leave your children in the lurch. Even so, people are often not willing to agree to obtain and maintain life insurance.

One resolution to this dilemma is to make the children the beneficiaries of the life insurance policy. The surviving parent will undoubtedly become the custodian or trustee of the proceeds for the benefit of the children, but that means the surviving parent would have a fiduciary (legally enforceable) duty to the children to use the life insurance policy for the benefit of the children. If the surviving parent were to breach that fiduciary duty, the children (or third parties for their benefit) would have a right to seek damages from the surviving parent for breach of that duty.

If life insurance is ordered or agreed, the amount of life insurance should correspond to the income of the parent paying support, the needs of the children and other factors. The key is to ensure that there is sufficient life insurance in place not only to substitute for the child support obligations, but also to cover other expenses such as health insurance, uncovered medical costs, extra-curricular activity costs, child care and contributions to college or post-secondary education.

Finally, the fact that one parent is required to pay for life insurance can and often does result in some offset for that parent. Court ordered or agreed life insurance premiums may be subtracted from the gross income of the parent obligated to pay support when determining the net income for child support purposes. Therefore, it does not have to be purely an added cost; the added cost can be offset by other things.

In conclusion, regardless of how a person feels about a former spouse, life insurance should not be viewed as an unnecessary mandate by the court or an unreasonable request, but as part of a responsibility to ensure your children and/or former spouse will have sufficient income to provide for their needs without becoming a burden upon the state or others. In fact, that is a primary concern of the court when considering whether to require life insurance.