Monday, August 17, 2009

Life Insurance Plans

Even though divorce takes such a significant financial and emotional toll on the parties, their children and other family members and friends, it is often necessary for the parties to look beyond their immediate legal and financial needs in order to recognize the future needs of one or both parties, as well as any children of the marriage, in the event of an untimely death of one of the parents. In fact, even in a non-marital relationship, factors to consider relative to the future financial security of the children of such a union are just as important.
One solution for securing financial stability in the future is through life insurance. Life insurance is one way to secure payment of spousal support beyond the life of the supporting spouse. Such a policy can be owned and paid for by the supporting spouse or the supported spouse, or a combination of both. It can be court-ordered, or voluntary.

With regard to child support, a custodial parent may get an order from the court that the supporting spouse maintain a life insurance policy covering at least the amount remaining to be paid in child support up to the time that child reaches the age of majority (which in California is 18). If such a policy is not in force at the time of death of the party ordered to pay the premiums, then the intended beneficiary will have a claim against the estate.

If no such order can be had, the custodial parent or even the non-custodial parent might wish to pay for and own such a policy to cover the circumstance where the other parent dies prematurely and either the custodial parent has no ability to maintain the marital lifestyle or the non-custodial parent is suddenly unable to pay for the additional child care costs.
Transferring ownership and/or beneficiaries on an existing policy is an option if purchasing a new policy is financially out of the question. Sometimes payment of life insurance premiums are added as additional child or spousal support which gives a tax break to certain payors. It is important to include provisions in the judgment that the payee spouse receive ongoing proof of payment of the premiums and named beneficiaries.

Some pitfalls of obtaining life insurance include naming minors as beneficiaries (creating the need for the court to establish a guardianship) and/or naming a trust as beneficiary, in which case the insurance proceeds are generally withheld until the conclusion of the probate process (sometimes more than a year or two).

1 comment:

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