Minnesota Divorce
and Family Lawyers

Call 763.450.1500
(8AM - 6PM)

Family Law	Collaborative Law	Litigation

Life Insurance as Security in the Post Marriage World

As a professional involved in your client’s investment and retirement planning, a lack of awareness of the effects of marriage dissolution on insurance coverage can cause complications for your client down the road. Suppose you want to advise your client to increase, decrease or eliminate the benefits of a life insurance policy, but doing so could be in direct violation of a divorce decree? What if your client has allowed or intends to allow his or her life insurance to lapse? Has your client even mentioned the fact that his or her spouse is, in fact, spouse number two?

Every divorce situation in which support is involved presents a planning opportunity. Considering that case law has consistently upheld the validity of agreements and court orders securing spousal maintenance and child support with a life insurance policy, the decisions you and your client reach can be immutably fixed by his or her divorce. At the same time, failing to take the terms of a divorce into account can have consequences anywhere from inconvenient to disastrous for your client and his or her estate.

Life Insurance As Security For Spousal Maintenance

Although Minnesota law does not require that life insurance coverage be maintained to the benefit of a former spouse as security for spousal maintenance, the courts have consistently upheld such arrangements when agreed upon in a Marital Termination Agreement (a formal legal document setting forth the terms to which the parties have agreed for the dissolution of their marriage). The right of the parties to enter into agreements prior to the judgment and decree is widely recognized and encouraged. Tomscak v. Tomscak, 352 N.W.2d 464 (Minn.Ct.App. 1984). If the parties have stipulated in such an agreement that one spouse will maintain or acquire life insurance with the other spouse as beneficiary, the court imposes that requirement by incorporating the agreement in the final judgment and decree.

Courts are not mandated to require life insurance as security for spousal maintenance. However, if the issue is contested they have rather wide discretion to consider whether circumstances justifying an award of maintenance also justify securing the award with life insurance. Laumann v. Laumann, 400 N.W.2d 355 (Minn.Ct.App. 1987), Frederiksen v. Frederiksen, 368 N.W.2d 769 (Minn.Ct.App. 1985). The courts will certainly do so in the case of a long term marriage during which a spouse has been absent from the work place for a long time and is without substantial resources.

"The trial court stated as its purpose in ordering respondent to maintain life insurance with petitioner as beneficiary ‘to secure the child support and alimony payments provided herein.’ We recognize that in the exceptional case the reasons which justify granting permanent alimony, in this case the long duration of the marriage and petitioner’s age and lack of marketable skills, also justify the securing of that alimony. The apparent purpose of this particular life insurance award was to provide alimony in the event that respondent should predecease petitioner." Arundel v. Arundel, 281 N.W.2d 663 (Minn. 1979). (See also O’Brien v. O’Brien, 343 N.W.2d 850 (Minn. 1984)).

Life insurance as security allows for the possibility that the obligor may die too early or unexpectedly. Other circumstances may arise that compel the court to assign life insurance benefits to an obligee spouse. In Klumb v. Klumb, 194 So 2d. 221 (Miss. 1967), a divorce action involving a wife who had become less than mentally competent, the court, acting with jurisdiction over both the divorce case and as superior guardian of a person of unsound mind, held that it could impose maintenance and life insurance benefits in the interests of reaching a just and equitable settlement because the husband, as the person married to the wife at the time she suffered her disability, was obligated to support her for the remainder of her natural life.

The amount of term insurance required is usually agreed to or court ordered to be maintained for the duration of the support obligation. However, because permanent maintenance is ordinarily payable until death or remarriage, the amount required cannot be known in advance and the parties agree to or the court orders a specific amount.

If the obligor has health issues which affect his or her insurability, the Court can only require that he or she make a good faith effort to obtain life insurance at a reasonable cost. It is not out of line for the obligee’s insurance agent to offer to assist in securing a policy for the obligor who is not promptly making a best effort to secure coverage. A "Second to Die" policy may be the solution to this sticky problem, particularly if the obligor has no alternative security.

A question worthy of exploration at another time is one of fairness in certain situations. Consider if a spouse were required to maintain life insurance for the benefit of the ex-spouse and that insurance was employer provided. What if those benefits ended upon retirement? Or if they ended because the obligor was required to change jobs late in life? Equivalent life insurance would probably be much more expensive (and possibly unavailable) for an obligor in his or her late fifties or sixties than it was when the obligor was thirty-five. Certainly an obligor could go back to court at that time and ask for a modification in the decree. But, the circumstances that would seem to make it fair to ask for modification (being age) are also circumstances that the obligee would cite as making the life insurance benefit necessary to him or her.

The Role Of The Financial Planner / Insurance Agent Or If The Payor Can’t Change It, Neither Can You

With the passage of time, the fading (or intensifying) of memory, or the reaction to the alienation of affection, some obligors may desire to change the beneficiary of a life insurance policy or cancel the policy altogether. Despite your client’s temptation to do otherwise, you should advise him or her on three basic requirements:

First, don’t let the policy payments lapse. If your client allows the policy to lapse, the beneficiary may have a claim against his or her estate. Your client’s estate could be divided in ways neither you nor the client expected or desired. In re Estate of Heinz, 415 N.W.2d 429 (Minn.Ct.App. 1987), the decedent obligor allowed a $10,000 life insurance policy naming his ex-wife as beneficiary to lapse. The decedent obligor’s subsequent wife challenged the trial court’s award of $10,000 to his first wife who was supposed to have remained as beneficiary on the policy. The Court of Appeals held that if a change of circumstances merited a modification of the decree, he should have requested one. The Court also ruled that it is not the beneficiary’s obligation to keep track of the status of the policy, but the responsibility of the obligor to obey the Order until such time as he or she obtains a modification by the court. The Court of Appeals affirmed the trial court’s award of $10,000 from the Heinz estate to the ex-spouse.

Second, do not change the beneficiary during the pendency of the divorce proceedings or if prohibited by the divorce decree. Parties are barred by Minn.Stat. Minn. Stat.518.091 from altering or canceling policies during the pendency of a marriage dissolution. Further, after a Judgment and Decree is finalized, your client may be required to provide proof of insurance to the ex-spouse on a regular basis. Violation of the edicts of the divorce decree could result in the matter being re-examined in part or in its entirety and possibly modified by the court to your client’s detriment. Besides, the ex-spouse may also have a legitimate claim against your client’s estate in excess of the amount he or she might have reasonably received in mere maintenance. Head v. Metropolitan Life Insurance Co., 449 N.W.2d 449 (Minn.Ct.App. 1989). There is a way around this, but it requires willingness and ability to die at the precise moment of one’s choosing. In American Family Life Insurance Co. v. Noruk, 528 N.W.2d 921 (Minn.Ct.App. 1995), the decedent changed the beneficiary of his life insurance policies from his wife to his sister during the pendency of the marriage dissolution. Because he died before final judgment, the Court of Appeals held that the restrictions of the temporary order restraining the parties from altering were terminated upon the death of the party. The Court held that equitable principles governed the disposition of the insurance benefits and not the temporary order. The equities favored the sister over the wife, so the sister was awarded the insurance proceeds.

Third, do not try to use the policy to secure a loan or otherwise encumber it. This may result in conflicting claims against your client’s estate that also detrimentally affect its division. The courts have reasoned that allowing the obligor to do so could substantially reduce the value of the policy thereby violating the spirit and purpose of the requirement to maintain the insurance policy. This situation was another issue in the case In re Estate of Heinz, 415 N.W.2d 429 (Minn.Ct.App. 1987).

Till Death Do Us Part ? Or The Never Ending Story

Maintenance always ends upon the death of the person required to pay it.

Minn.Stat Minn. Stat.518.64 Subd. 3 states:

Unless otherwise agreed in writing or expressly provided in the decree, the obligation to pay future maintenance is terminated upon the death of either party or the remarriage of the party receiving maintenance.

Pretty straight forward. I’m dead. You don’t get paid anymore.

The question arises, how can life insurance be used to secure an obligation which terminates upon the death of the obligor? If the term policy pays, death has obviously occurred and no more maintenance would have been payable anyway. How can the courts justify ordering that security be required for an arguably non-existent obligation? If a Judgment and Decree specifically states that the maintenance obligation ends upon the death of the obligor or simply refers to the language as set in Minn.Stat. Minn. Stat.518.64 Subd. 3, then it could be argued that life insurance cannot secure or be awarded as part of spousal maintenance because the obligation to the spouse has terminated right along with the obligor (assuming maintenance payments were not in arrears). This seems somewhat contradictory and is an exception to the rule that the maintenance obligation ends with the death of the obligor.

In the unpublished case Carlson v. Carlson, C2-96-2167 (Minn.Ct.App 1997), Judge Randall, while concurring with the majority on the whole, wrote a dissenting opinion on the question of life insurance as "security" for spousal maintenance. Judge Randall said, in part, "...it is not honest to call mandated life insurance a method of ‘securing maintenance.’ To require life insurance on the obligor to secure maintenance is the classic legal oxymoron. The payment of life insurance never develops until the insured dies - and an obligor’s requirement to pay maintenance dies with him or her unless specifically read into the decree."

Although Judge Randall’s opinion was written simply as a commentary on this particular point, his position is not unreasonable and could arise in future arguments to the Court of Appeals. Meanwhile, the court’s acceptance of a stipulation between the parties that life insurance be maintained to secure a support obligation and the incorporation of that agreement into the final decree is unquestionably valid as is a court decision that life insurance be required to secure a support obligation.

Life Insurance As Security For Child Support

The statute regarding a child support obligation differs from its spousal maintenance counterpart in that the child support obligation does not necessarily end upon the death of the obligor. The estate of the deceased obligor retains the obligation to support the minor children.

Minn.Stat. Minn. Stat.518.64 Subd. 4 states:

Unless otherwise agreed in writing or expressly provided in the order; provisions for the support of a child are not terminated by the death of a parent obligated to support the child. When a parent obligated to pay support dies, the amount of support may be modified, revoked, or commuted to a lump sum payment, to the extent just and appropriate in the circumstances.

The court has the power to order an obligor to maintain or acquire life insurance to secure child support for the duration of the child’s minority. Justis v. Justis, 384 N.W.2d 885 (Minn.Ct.App. 1986). If an obligor changes beneficiaries in violation of the decree, the children are often entitled to the proceeds despite the beneficiary named on the policy. Bankers Life & Cas. Co. v. Slater, 437 N.W.2d 109 (Minn.Ct.App. 1989).

The Minnesota Court of Appeals, however, also recognizes the wide discretion of the trial court to order or not to order life insurance to secure child support. In Riley v. Riley, 369 N.W.2d 40 (Minn.Ct.App. 1985), the Court of Appeals upheld the trial court’s opinion that the circumstances of the case did not warrant ordering the obligee to secure the child support with insurance.

Because the child support obligation does not end absent specific language in the final decree, vague language requiring maintaining or providing life insurance for the children is presumed to secure child support. However, in seemingly conflicting language wherein the parties’ intent is vague, the court has remanded (sent back to the original court for further determination) the issue of the parties’ intent to the district court.

This confusion lies in the question of what the parents wanted for their children. Was the life insurance to be security for child support? In such a case, the logical disposition of the benefits is a trust account which pays proceeds during the child’s minority and may be limited to the amount necessary to make the payments. Was the life insurance meant to be a gift? In that instance, the entire proceeds might be established in a trust and made available to the child upon emancipation or, depending on the attitude of the surviving parent, may be paid directly to the child.

The parties can agree to, or the court can order, decreasing term insurance as the remaining obligation can be approximately calculated with reasonable certainty. However, in the experience of this author, most attorneys do not consider this solution and do not advocate the option of decreasing term insurance for their client obligor.

How Long Must The Policy Be Maintained?

This depends, again, on the language in the final decree. If the life insurance is meant as security for child support and is specifically designated as such, the policy could conceivably be terminated or the beneficiary changed as soon as the youngest dependent achieves his or her majority.

Unless agreed to by the parties, child support obligations end upon the occurrence of certain events, including emancipation of the child. If the Judgment and decree does not assign a general obligation of support beyond that day, the obligation to maintain life insurance as security for child support payments is also presumed to have ended at that point. If the policy is maintained in the nature of a gift to the child or as part of the property settlement between the parties, the requirement to maintain life insurance could remain indefinitely.

The same strictures against altering or canceling a policy apply here as they did with spousal maintenance. In Thiebault v. Thiebault, 421 N.W.2d 747 (Minn.Ct.App. 1988), the husband was required by his divorce decree to maintain $10,000 of life insurance with his daughter as beneficiary. The husband subsequently remarried and named his new wife the beneficiary of a $28,000 life insurance policy. The obligor never complied with the provision to provide life insurance for his daughter.

Upon his death, his first wife on behalf of their daughter, successfully brought action for a $10,000 share of the policy. The Court of Appeals held that the provision in the final decree and his obligation to provide for his daughter during her minority justified awarding $10,000 to the daughter and placing those funds in a constructive trust.

Conclusion

Insurance of spousal maintenance and child support is becoming a more common facet of marriage dissolution. As an insurance professional, your advice to your clients must take their previous marriages into account. When suggesting a course of action or responding to your clients’ requests, you have a responsibility to be aware of any restrictions imposed by a final judgment and decree. In family law, our goal is to represent our clients to the fullest extent by achieving a just and equitable settlement of all property and maintenance issues and allowing them to proceed with their lives with as little additional complication as possible. The terms of an effective divorce decree are the guidelines which, when followed, reduce friction and prevent legal battles. Insurance professionals, while providing the peace of mind that planning for the future brings, can also oversee the process to assure that the provisions of court orders in a divorce are duly complied with and executed in a proper fashion.

Goldstein Law Office, P.A. is licensed to practice family law in the State of Minnesota: Hennepin County, Ramsey County, Dakota County, Anoka County, Carver County, Scott County, Washington County, Sherburne County, McLeod County and Wright County, Minneapolis, St. Paul, Minnetonka, Plymouth, Wayzata, Maple Grove, Hopkins, St. Louis Park, and surrounding Twin Cities suburbs.

Visa • MasterCard • Discover • AMEX accepted

Site Map

This website is not intended to constitute legal advice or the provision of legal services. By posting and/or maintaining this website and its contents, Goldstein Law Office does not intend to solicit legal business from clients located in states or jurisdictions where Goldstein Law Office or its individual attorneys are not licensed or authorized to practice law.

Material presented on this website is intended for informational purposes only. It is not intended as professional advice and should not be construed as such.

Minnesota Divorce and Family Lawyers

Call 763.450.1500 (8AM - 6PM)