We all agree that divorce is a difficult transition in our lives. Not only does it involve emotional and social disconnect, but it also comes with many financial problems. The good news is you can protect yourself from many unnecessary financial issues by planning early.

Most family law attorneys are great at navigating their clients though a divorce process and may even refer them to financial planners and money managers. If you have a life insurance policy or minor children, we also advise to consult with a life insurance attorney.

Child Support and Life Insurance

A court order does not guarantee that your life insurance claim will be paid.

When minor children are involved in a divorce, child support becomes one of the main issues. The paying party may wish (or be ordered) to take out a life insurance policy for the benefit of their minor children.

In case of the paying party’s death, the former spouse should receive the life insurance money for the benefit of the children. Ideally, there would be no problem with receiving those benefits from the insurance company. However, in many cases, such claims get denied.

One of our clients came to us for help after the insurance company refused to pay her on a group life insurance policy that her ex-husband had through his job. The parties had two minor children when they divorced and the court decree obligated the father (insured) to name his children as primary beneficiaries on the policy.

The father later remarried and named his new wife the sole beneficiary. The surviving spouse also filed a claim. Thus, even though our client had a divorce decree that allowed her to collect the life insurance benefits as child support, she could not do so without litigation.

The amount of life insurance you will receive as child support may be smaller that what you expect.

Another problem with life insurance and child support is the amount of money the children should receive.  A divorce decree may have a life insurance provision that may be misinterpreted by the insurance company.

For example, a divorce decree says, “The husband shall maintain a minimum of $200,000 life insurance on his life naming the children as beneficiaries for so long as he is obligated to pay child support. He shall not encumber that insurance for so long as his child support obligation continues.”

The husband remarried, named his new wife the beneficiary on this policy and died a year before his child support obligation would end. The former wife and the surviving spouse both filed a claim for benefits.

The former wife claimed that she is entitled to the total amount of $200,000 while the surviving spouse claimed that the divorce decree only allocated to the children the amount worth of a year of child support, since the insured died a year before his child support obligation would end.

The decree in this example does not specify that upon the father’s death the children should receive only the amount of child support obligation due. The decree simply states that the children are to be named beneficiaries on the policy for life insurance in the amount of $200,000

Under the law, a constructive trust is usually imposed on insurance proceeds for the benefit of minor children when a decedent-father has failed to comply with life insurance requirement in dissolution decree.[1]

In such situations, the insurance company will file an interpleader and deposit the life insurance money at issue into a court’s escrow account. Such cases are usually litigated as the competing claimants rarely compromise.

To avoid potential litigation and to protect your children’s financial future, have a consultation with a life insurance attorney before you finalize your divorce. At our law firm, we offer professional legal services to people going through a divorce. Our life insurance lawyers also recover denied claims, represent clients in interpleader actions and negotiations with opponents. Call 888-510-2212 for a free consultaiton.

Call us now at (888) 510-2212. Competitive contingent fees.