A court may order that life insurance be maintained to secure the payment of child or spousal support or the payout of a distributive award. It is not to be an award in an of itself. Its purpose is not to create an additional fund on the death of a party, but rather to secure that support and property payments contemplated by the divorce decree will be made, even on death.
Thus, in its June 20, 2014 decision in Marfone v. Marfone, the Appellate Division, Fourth Department, modified the judgment of Oneida County Acting Supreme Court Justice Joan E. Shkane to reduce the required life insurance from $500,000.
We agree with defendant, however, that the amount of life insurance the court required defendant to maintain with respect to his child support obligations is excessive, and we therefore modify the amended judgment by reducing the amount of that life insurance from $500,000 to $300,000.
Domestic Relations Law §236B(8)(a) authorizes the use of life insurance to secure the divorce payments:
8. Special relief in matrimonial actions.
a. In any matrimonial action . . . the court may also order a party to purchase, maintain or assign a policy of . . . on the life of either spouse, and to designate in the case of life insurance, either spouse or children of the marriage . . . as irrevocable beneficiaries during a period of time fixed by the court. The obligation to provide such insurance shall cease upon the termination of the spouse’s duty to provide maintenance, child support or a distributive award.
Thus, insurance can be ordered to be maintained on the life of either party, to be owned by either party, naming either spouse or the children as irrevocable beneficiaries for a period no longer than the divorce decree payments.
It has been held error not to award insurance to secure support on distributive award payments. Charles v. Charles, 53 A.D.3d 468, 861 N.Y.S.2d 135 (2nd Dept. 2008: requiring the husband to maintain a life insurance policy for the benefit of the wife in an amount not less than $ 1,500,000 during years 1 through 5 of his maintenance obligation, and thereafter, during years 6 through 10, the defendant shall maintain said policy in the amount of not less than $ 750,000, and during years 11 through 15 in an amount not less than $ 500,000).
However, in Alexander v. Alexander the First Department on April 8, 2014 held that it was proper for a lower court to decline to order insurance where the “wife elicited no evidence relevant to the issue.” What evidence is necessary; the cost of premiums, insurability, the decreasing present value of the divorce payments over time?
One line of cases has held that because a decreasing term award is “difficult to administer,” a fixed amount of insurance is preferable (see Mojdeh M. v. Jamshid A., 36 Misc. 3d 1209(A); 2012 N.Y. Misc. LEXIS 3176; 2012 WL 2732169 [Sup. Kings]). Other courts have found decreasing term preferable. R. M. v. C. M., NYLJ 1202651473470, (Sup. Westchester 3/21/2014 [Christopher, J.]); A.C. v. J.O., 40 Misc. 3d 1226(A), 975 N.Y.S.2d 707 (Sup. Kings 2013).
Even should a specific order be entered directing a party to maintain life insurance and be sent to the existing life insurance company, much like a Qualified Medical Child Support Order, overseeing whether the policy remains in effect may be difficult. The failure to maintain the policy may be disastrous. Thus, it should be preferable for the beneficiary spouse to own the policy (see, Gay v. Gay [4th Dept. 6/13/2014]).
On the other hand, the insurance should not create a windfall, and requiring a support payor to use his or her after-tax dollars to pay premiums is a substantial additional burden.
Thus, the Divorce Life Insurance Trust is proposed. A trust is created to own the policy. The co-trustees are the benefitting spouse and someone chosen by the obligated spouse. On death, the proceeds are used to make the payments required by the decree when, as and if accrued (solving the issues of maintenance terminations on remarriage; college cost variables, etc.). Upon the termination of the divorce obligations, the balance gets paid over to the decedent’s estate (or other named beneficiaries). Of course, allowing decreasing face amounts, may also be brought into the mix. Easier to police and administer; no windfalls.
The statute, however, may not allow for this. It provides only that “either spouse or children of the marriage” be the “irrevocable beneficiaries.” However, it is suggested that the statute be amended or interpreted to allow for this. Of course, the parties may always stipulate to it.