Child Support And Life Insurance Coverage
Child support payments are aimed at ensuring a minor child continues to receive support from both parents just the way he or she would have if the parents were still married to each other. One of the worries that a custodial parent may have at the time of divorce is: “How will I support my child alone, if the paying parent dies before the completion of child support obligations?”
To address this future uncertainty and to ensure that your child does not suffer financially in terms of support payments in the event of the death of the paying parent, you can buy life insurance coverage.
Including Life Insurance Provision in a Divorce Settlement
Divorcing couples in California have a right to secure their child support obligations by way of a life insurance policy. Even if you have an existing insurance policy, at the time of divorce you can add more coverage or purchase a new life insurance policy.
Life insurance coverage is a prudent way to secure your child support obligations, apart from financially protecting your child’s future in the unfortunate event of the death of the paying parent. A seasoned child support attorney in Orange County will help you address the child support obligation issue with reference to life insurance at the time of your divorce settlement.
Your attorney will enable you to consider some vital questions, such as:
- What are the pros and cons when the life insurance benefits are directly paid to the child?
- What are the pros and cons if the surviving parent is named as beneficiary of the life insurance policy?
- What are the pros and cons if the life insurance benefits are directly paid to a trust?
- What happens when the paying parent cancels insurance coverage or changes the coverage at some point?
- What happens if the beneficiary designations in the policy are changed by the paying parent later on?
You need to carefully think through and address these issues when the life insurance coverage provision is drafted as part of your divorce settlement agreement. Work with a knowledgeable divorce lawyer in Orange County who is well-versed with all aspects of life insurance coverage for the purpose of securing child support.
When the Child is Named the Policy Beneficiary
Parents often feel that the best way to eliminate future possibility of conflict is to keep out of the insurance policy and name the child as the sole beneficiary. However, the hurdle in this approach is that the child will be considered a minor before he or she turns 18.
In the event of the policyholder’s untimely death, the proceeds of the life insurance coverage will go to the child’s guardian appointed by the court (usually the surviving parent). The guardian becomes the legal administrator of the insurance funds until the child attains the age of majority.
The second issue to consider is: Will your child be mature enough even at 18 to manage his or her life insurance funds securely? You should think through these issues before you name your child as the policy beneficiary.
When a Custodian is Named the Policy Beneficiary
For many divorcing couples, it makes more sense to designate a “custodian” under the California Uniform Transfers to Minors Act (CUTMA) to manage the life insurance proceeds on behalf of the child. You should discuss with your insurance provider to ensure that they will recognize the custodian as the policy beneficiary.
Although the age of majority in California is 18, the age of trust termination is 21. This means the custodian can hold the funds on behalf of the child until the child has turned 21. The custodian does not have the authority to use the funds for themselves, but can only use them for the child’s benefit (such as college education of the child).
When a Co-Parent is named the Policy Beneficiary
Sometimes the paying parent may choose to make the other parent the beneficiary of the life insurance policy for the purpose of child support. In this case, the surviving parent will be morally bound to use the life insurance proceeds as intended in the divorce settlement for child support. But there will be no legal obligation to do so. Even so, many divorcing couples choose this option because they implicitly trust the surviving parent to look after the child in the event of the death of the paying parent.
It is important to consider some important limitations of this option. Life insurance proceeds in this case will not be protected from the creditors of the beneficiary. The beneficiary may also file for bankruptcy, and could face a financial claim from their current spouse. Consider these issues carefully with your Orange County child support attorney before deciding on the life insurance beneficiary.
Eliminating a Windfall Amount
If the paying parent has taken out a very substantial life insurance coverage for child support payments, and he or she dies just close to the end of support obligations. In this case, the child may stand to gain a very large insurance payout at a young age.
You and the other parent can eliminate the possibility of such windfall by putting in place a reducing schedule of policy proceeds. You can estimate the costs of your child’s upbringing and education at different stages and cover them adequately in this arrangement.
Key Things to Consider
The divorce agreement should address the following issues related to provision for life insurance:
- Include a provision in the divorce agreement that if the paying parent fails to leave the insurance proceeds in compliance with the terms of the agreement, a claim for the deficit amount will be brought against their estate. In addition, the estate will be required to pay for the legal expenses incurred to enforce this provision.
- If the paying parent purchases a subsequent life insurance policy, it will be deemed to be intended for the payee’s benefit (the beneficiary of the original policy) to the extent of the child support amount coverage required under the divorce agreement. In other words, the paying parent cannot avoid the previous obligation by purchasing a new insurance policy and canceling the old policy.
- The divorce agreement should include a condition that the paying parent must provide the other parent an annual proof of the life insurance coverage and beneficiary designations. This will ensure that the paying parent does not make any unilateral changes to the insurance policy amount or the beneficiary designations.
Retain a Committed Orange County Child Support Attorney
Life insurance policy coverage makes sense to protect the future interests of your child. But you need to ensure that there are no gaps or weaknesses in the provision made in your divorce settlement agreement for this purpose. Retain an experienced child support attorney in Orange County who can help you navigate the complexities of law and ensure that yours and your child’s rights are protected.