What happens when a deceased father failed to maintain life insurance for the benefit of his ex-wife and the children of the marriage entitled to receive support? Is there a claim, against whom, and for how much?
Those were the questions answered by the Appellate Division, Second Department, in its August 31, 2016 decision in Mayer v. Mayer.
There, the plaintiff (mother) was the second wife of Paul S. Mayer (father). Pursuant to their 2000 judgment of divorce, the father was, among other things, obligated to pay child support and educational expenses for the children of that marriage, Alanna and Matthew. The judgment of divorce also provided that the father was to maintain a term life insurance policy in the face amount of $1,000,000 for the benefit of Alanna and Matthew, with the mother being named as trustee on their behalf, “until such time as his support obligation is fully satisfied.”
In 2001, the father married Kristen and thereafter had two children, Jonah and Ryan.
In 2005, due to the father’s claimed inability to pay the premiums on the $1,000,000 policy required under the judgment of divorce, the policy was converted into two policies insuring his life, both of which were issued by New York Life. One policy, with a face amount of $200,000, listed the father as the owner and the mother as the beneficiary. The other policy, with a face amount of $100,000, listed the mother as both the owner and the beneficiary. The mother paid the premiums on the $100,000 policy.
In 2006, the mother moved in the Family Court to have the father held in contempt for, among other things, failing to maintain the $1,000,000 policy required by the judgment of divorce. The Family Court found the father to be in contempt and directed him to comply with the life insurance provision of the judgment of divorce. However, apparently the father could not obtain a new policy in the amount of $1,000,000 because of ill health.
However, the father did maintain other life insurance policies totaling $750,000. Those additional policies listed various beneficiaries: Kristen, Jonah, and Ryan; Alanna and Matthew; and the two children of the father’s first marriage, Scott and Jonathan. Accordingly, the Family Court’s order provided that if the father could not obtain a $1,000,000 policy, he would be required to change the beneficiaries on those other policies to name Alanna and Matthew as the sole beneficiaries.
The father died in March 2011, five years after the Family Court held him in contempt. When he died, he was significantly in arrears in the support he was obligated to pay with respect to Alanna and Matthew. Additionally, the father had failed to comply with the Family Court’s May 2006 order that he either maintain a $1,000,000 policy for the benefit of Alanna and Matthew or that he change the beneficiaries of his existing policies (other than the two New York Life policies) to Alanna and Matthew as sole beneficiaries.
Finally, in 2010 the father changed the beneficiary on the $200,000 New York Life policy, removing the mother as beneficiary and naming as beneficiaries Kristen (60%), Jonah (5%), and Ryan (5%); Alanna (5%) and Matthew (5%); and Scott (10%) and Jonathan (10%).
After the father’s death, the mother commenced this action to impose a constructive trust upon the proceeds of certain of the life insurance policies. The mother first alleged that the proper amount of the constructive trust was $897,000, the face amount of the insurance policy required under the judgment of divorce, $1,000,000, minus the $103,000 in proceeds Alanna and Matthew had received from the father’s various policies. The mother later reduced her claim by the $100,000 she received from the $100,000 New York Life policy.
The mother moved for summary judgment seeking to impose a constructive trust upon insurance proceeds in the amount of approximately $797,600. Kristen, on behalf of herself and Jonah and Ryan, cross-moved for summary judgment dismissing the amended complaint insofar as asserted against her.
The Supreme Court, Orange County (Robert A. Onofry, J.), granted that branch of the mother’s motion, but only to the extent of imposing a trust upon a sum equal to the father’s child support and educational expense obligations under the judgment of divorce and what he would have been required to pay had he lived. The court concluded that the life insurance provision in the judgment of divorce was intended to ensure that Alanna and Matthew’s support and educational expenses would be paid in the event of the father’s death; it was not intended as a stand-alone entitlement.
Moreover, Justice Onofry ultimately determined that the proceeds the mother received from the $100,000 New York Life policy should be taken into account in determining the amount of insurance proceeds subject to the constructive trust. Those proceeds would be applied ratably with the proceeds of the father’s other policies to satisfy his child support and educational expense obligations. The court determined, however, that the mother was entitled to a credit for the premiums she had paid to implement and maintain the $100,000 New York Policy.
The mother appealed. The Second Department affirmed. The appellate court first noted the general rule that a party’s obligation to pay maintenance and child support terminates upon that party’s death (see Domestic Relations Law § 236[B][a]; [5-a][g]; [f]).
The court also recognized that the death of a payor spouse, however, may cause financial injury to a former spouse or children who, but for the payor spouse’s death, would have continued to receive maintenance, a distributive award, or child support. Accordingly, the Legislature provided that a court may require a payor spouse to maintain life insurance to prevent that financial injury:
The court may also order a party to purchase, maintain or assign a policy of accident insurance or insurance on the life of either spouse, and to designate in the case of life insurance, either spouse or children of the marriage, or in the case of accident insurance, the insured spouse 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 (Domestic Relations Law § 236[B][a]).
Agreeing with Justice Onofry, the Second Depart stated that the purpose of this provision is not to provide an alternative award of maintenance or child support, but solely to ensure that the spouse or children will receive the economic support for payments that would have been due had the payor spouse survived.
Accordingly, where life insurance is appropriate, it should be set in an amount sufficient to achieve that purpose. It should not be in an amount that would provide a windfall.
Thus, Justice Onofry correctly interpreted Domestic Relations Law § 236(B)(8)(a) when holding that the amount of the insurance proceeds subject to the constructive trust should be the amount of the father’s child support and educational expense obligations had he lived. The court properly rejected the mother’s contention that the proceeds subject to the trust should equal the face amount of the life insurance policy required under the judgment of divorce, $1,000,000, minus the life insurance proceeds Alanna and Matthew had received. Additionally, the court did not err in determining that the proceeds of the $100,000 New York Life policy receive by the mother (reduced by the premiums the mother paid on that policy), should be taken into account ratably in determining the amount of the constructive trust. The purpose of the $100,000 New York Life policy was to ensure that the father’s death would not cause economic injury to Alanna and Matthew in the form of the loss of their support and payment of their educational expenses.
The Second Department holding appears internally inconsistent and foreshadows a flood of litigation.
First, if it is intended that the insurance proceeds only be sufficient to pay the obligations remaining under the judgment, and not to create a “stand-alone entitlement” or windfall, then the entirety of the $100,000 in proceeds received by the mother should reduce the balance to be awarded under the constructive trust. Otherwise, if the mother’s proceeds are only applied “ratably” (proportionately with all the other insurance policies) towards the award equal to the balance of the father’s obligations, then the amount of the $100,000 in proceeds not ratably contributed represents amounts in excess of the father’s remaining obligations. It is just an extra entitlement; a windfall as defined by the court.
More importantly, unless judgments award life insurance payable, in effect, to a fund used to satisfy the remaining obligations, with the balance to be paid over as provided by the payor spouse by insurance contract, trust, or will, then it is likely that all insurance awards will result either in a claim by the recipient spouse, or a claim by the survivors of the obligor. Upon death, either the actual proceeds will be lower than the remaining obligations (result in a claim as presented in this case), or they will be higher than the remaining obligations. If the recipient receives more proceeds than the remaining obligations, may the survivors of the deceased obligor spouse, seek to impose a constructive trust, on the excess proceeds.
Certainly, the survivor’s family should not be rewarded for the obligor’s default (here, the contemptuous failure to maintain the $1,000,000 in insurance or change his beneficiaries). Here, the father’s new family should not receive more than they would had the obligor complied with the judgment of divorce.
Thus, if the mother should be able to recover for a breach or default only the balance of the support obligations, the new family should be able to prevent and recover the windfall resulting from the retention of the “excess” proceeds.
If not, and if the only way to prevent the windfall is to default and fail to maintain the required insurance, then ex-spouse obligors have a great incentive not to obtain the insurance the Legislature determined to be needed. Ex-spouse recipients of support face a future without any insurance.
In that regard, the Legislature’s solution was to allow for court to provide that insurance shall cease upon the termination of the spouse’s duty to provide maintenance, child support or a distributive award” (Domestic Relations Law § 236[B][a]). That appears to call for an end to the insurance upon a certain date, the date all obligations end. It does not appear to require that, on pain of constructive trust action, the insurance be continually decreasing, tied to the dollar amount of obligations remaining.
Of course, the trial court has the power to provide in the judgment itself for decreasing term insurance. Indeed, it could call for the proceeds to be paid into a fund to be used to pay the remaining obligations, when, as, and if the accrue. Of course, the parties, themselves may always provide for such in a settlement agreement.