Recently I wrote regarding using life insurance to assure payment of child support.  Another scenario is life insurance to protect the alimony payment – the spouse being the beneficiary of the policy.  This is a straight forward consideration flowing from payer/insured spouse to payee/beneficiary spouse.  The insured wants less coverage and less premium, the payee/beneficiary spouse wants more coverage.

Premiums on a policy of life insurance on the alimony payer benefit the alimony payee.  Payments to a third party on behalf of or for the benefit of a spouse or former spouse can qualify as alimony.  Paying insurance premiums can qualify if the payer spouse is not obligated to pay under the insurance contract – because in that situation he or she is not simply paying his or her own expense.  Generally, the owner of the policy is the person who is obligated to pay the premiums.  So in order for premiums on the life of the insured/alimony payer’s life paid by the insured/alimony payer to be deductible as alimony, the alimony payee must be the owner of the life insurance policy.  The parties’ Agreement should require the insured/alimony payer to pay the premiums on the payee’s behalf and the parties’ Agreement should state that such payments are alimony.

Another situation where life insurance can be appropriate is to replace a survivor annuity if it is unavailable or available only on undesirable terms.  A traditional defined benefit pension pays a lifetime annuity to the retiree.  Federal law generally requires married persons to elect what is known as a joint and survivor annuity payment option, unless the employee’s spouse agrees otherwise in writing. In divorce, the parties can agree to a joint and survivor annuity or the court can order it.  Under this option, if the non-employee spouse survives the employee spouse, the pension payer continues the annuity payments at a reduced rate to the non-employee spouse for his or her life.

The initial payment (during the joint lives) under a single life annuity payment option is higher than the initial payment under the joint and survivor annuity option.  Depending on the amount of that payment reduction, it may make financial sense to elect the single life annuity and buy life insurance on the employee’s life to protect the income stream for the non-employee in the event that he or she is the survivor. The advice of an experienced life insurance professional can be very useful in doing this analysis. For further information see: https://www.consumersadvocate.org/life-insurance.

The decision to pay money to an insurance company now so that the insurance company will pay others after you are dead is usually undertaken with some ambivalence.

If you have minor children, you generally will still need life insurance coverage post-divorce.  But it is a prospect that many divorcing parents find even more distasteful at that time. Add to this, the fact that the divorce court generally cannot order a party to obtain or continue life insurance. (In Virginia, the court can order a party to continue existing life insurance coverage and designate children as beneficiaries if the party has a duty of support to such minor children. Va. Code Sec. 20-108. D) So the party who is proponent of the life insurance coverage, usually the economically dependent spouse, will often have to make a concession on some other issue to get the desired life insurance coverage. In many cases, since that concession would mean less money now to the economically dependent spouse, the concession is not made and the life insurance is not agreed to. As a result, many divorced fathers and mother have far less life insurance coverage than a married parent with similar income, net worth and family responsibilities would have. One more risk for children of divorce.

When we represent the economically dependent spouse, or in case where there are two significant income earners, we look carefully at apparent life insurance needs and counsel clients to seek an agreement requiring adequate life insurance coverage. When we represent the higher earner, if there are minor children, we counsel our client to carefully examine the life insurance need and think it through before bargaining for lower coverage.

It is always necessary from the insured’s viewpoint for the Agreement to provide for reduced coverage as the future financial obligation decreases over time. This is especially important if the life insurance policy does not lock in level premiums per unit of coverage for the duration of the obligation. It is best to consult with an experienced life insurance agent with a highly rated insurance company while the marital settlement agreement is being negotiated to determine the availability and cost of coverage.  For further information see: https://www.consumersadvocate.org/life-insurance.

 

Divorcing spouses and parents have varied life insurance needs. Whenever one or more persons are financially dependent on another’s earnings there is what the life insurance industry refers to as an insurable interest. In families of two married parents with young children the primary wage earner often has life insurance coverage equal to several years earnings. The benefit to the financially dependent spouse and the children is obvious. The benefit to the insured party is the peace of mind that comes from knowing your loved ones are provided for in all events. Often both spouses carry life insurance coverage because both are employed or, if one is not employed, the stay at home spouse is providing services that would have to be purchased in the event of her, or his, untimely death. For further information see: https://www.consumersadvocate.org/life-insurance

Upon divorce in families with children there is still the same basic economic need for life insurance coverage to protect the child support payments. The children generally would be the beneficiaries of the policy – directly or through a trust. The insured still benefits from knowing his loved ones will be provided for. Life insurance proceeds paid during the insured’s children’s minority would be needed and would benefit the insured’s children just as they would if he or she died while the children were minors and the insured was married to the other parent at death.

But the dynamic is different in divorce. The insured views the insurance coverage as benefiting the future ex-spouse. Often there is hard bargaining around how much insurance coverage there will be, how long it will be in place or how quickly it decreases, and whether the spouse can be the trustee of the trust to which the insurance proceeds are paid. I’ll explore this further in future posts.

Ask the divorce lawyer

In this post, divorce lawyers from Thyden Gross and Callahan answer your family law questions.

The Dispute

Q: The children didn’t have school today (Friday).  My ex says I have to pick them up at her house.  I say that she has to drop them off to me. Who’s right?

Divorce Lawyer Answer:  First let’s look at the divorce order or separation agreement if you have one.

What the Agreement Says

Q:  Our separation agreement says:  “The father shall have the children on Wednesdays and Fridays from pickup at daycare/school/camp (hereinafter referred to as “school”) or from 8:30 am for any child not attending school that day.”

Divorce Lawyer Answer:  The agreement is not clear. The drafter tried to cram too many thoughts into that one run-on sentence.  It would have been better if the sentence ended with the parenthetical.

The next sentence would read:  “The father will pick up the children from mother’s home at 8:30 am on days when they are not in school.”  Or the mother will drop them off at the father’s house.  What have you been doing so far?

Past Conduct

Q:  On the mornings that I have the kids, but it is my ex’s day, if the kids are sick, I will drop them off at my ex’s.  So on her mornings, when it is my day, she should do the same.

The issue with Fridays is that every two weeks, there is no school on Friday. Teacher development day or something. So I have it worked out with my boss, that I work from home every other Friday so I can watch the kids.  This way, it is good for both of us, I don’t lose wages, and my ex also gets to go to work and not lose wages either.

I will also not pay her lost wages claims. I told her that I will not pick them up today and she’s causing her own wage loss.  I want her to pay for my legal fees as well.

The Solution

Divorce Lawyer Answer:  I agree that you should not have to pay her for lost wages.  And I agree that both of you win and it is therefore best for the children if she drops them off on Fridays.

However, the agreement doesn’t say that, so in the event of a dispute, you either have to reach a mutual agreement or go to mediation or court.  The American Rule applies to legal fees – each pays their own.

A Robot Mediator for Family Law Cases?

“I’ve only got two tools my toolbox,”  divorce attorney Andy Pratt tells his clients.  “Either we negotiate an agreement with your spouse or we go to court and let the judge decide.”

Maybe now he will be able to add a third tool to his toolbox.

A robot mediator using artificial intelligence and an algorithm has settled a court case in Canada.  A client disputed a fee charged by a personal trainer.

The parties had tried mediation with a human but failed to resolve their case.

Then the parties tried Smartsettle ONE, an online program which allows parties to make offers and counter-offers by moving flags along sliders.  Another program, Smartsettle Infinity, allows participants to include conditions in their settlements.

They settled the case in less than two hours.

What’s next – a robot mediator for family law cases?