Life Insurance and Divorce

Life insurance is not something that most of us like to think about or discuss.  However, in the context of divorce it is very important and something that needs to be addressed.  While this article talks about life insurance related to divorce, the concepts also apply to unmarried parents or unmarried persons where one may owe money to the other.

The basic idea behind life insurance in a divorce is that if someone owes money to someone else – whether for spousal support, child support or a property settlement – and the person who owes the money (the payor) dies, the person who was relying on that money is out of luck.  If the payor has life insurance, the recipient is still provided for.

There are three main considerations in life insurance: How much, how long and beneficiary designation.

How much life insurance is needed?

The amount of life insurance that is needed is usually the amount of money owed to someone.  For example, if someone owed a $50,000 property settlement, then $50,000 in life insurance coverage would be needed.  One generally accepted exception to this rule is that you don’t necessarily need dollar-for-dollar coverage to insure a spousal support award.  The reason for this is that spousal support is taxable to the recipient but life insurance is not.  This means, for example, that if someone was supposed to receive $100,000 in life insurance over a period of several years, they would pay taxes on that support and so they really wouldn’t receive $100,000 – they might actually receive $75,000 after paying taxes.  In this example, then, $75,000 would be an appropriate amount of life insurance to insure the $100,000 spousal support award.  This is only an example which is offered for the purpose of better explaining the concept.  You should do your own analysis on how much insurance is appropriate in your particular situation.

When it comes to child support, the easy answer is that you should maintain the same amount as you would pay in child support over time.  However, this does not take into account the fact that if one parent passes away the other parent will have substantially increased expenses for increased childcare, now having to pay all of the expenses, etc.  For this reason, people will often “round up” and maintain more life insurance to benefit the children than you would otherwise think necessary.

How long do I have to maintain life insurance?

This answer is fairly straightforward – you need to maintain life insurance for as long as you owe money to someone, including any arrearage.  An “arrearage” means past-owed money, i.e., payments that you owed but haven’t paid.  If you owe back payments, you need to maintain life insurance until you are completely paid up.

Who is the beneficiary?

In spousal support and property settlement situations, the recipient of the money is going to be direct beneficiary of the life insurance.  The reason is fairly obvious – if someone was owed money, they should receive the life insurance.

What about for child support?

People sometimes think that their children should be the beneficiary of the parent’s life insurance policy.  They shouldn’t!  The idea is well-intentioned but a non-starter.  Consider this – what if you passed away and your 5-year-old received $250,000 and has a Hot Wheels fascination?  Do you get the idea?  The money should either go to the other parent to use for the children or should go into a trust for the benefit of the children.

People very frequently name the other parent as the direct beneficiary of life insurance when there are children involved.  The basic idea is that the other parent is now responsible for all of the children’s care and expenses and therefore should have access to the money to make necessary purchases.

If someone is not comfortable naming the other parent as direct beneficiary, then the next most common approach is to set up a trust to hold the money.  The life insurance policy will name the trust as the beneficiary.  The other parent is typically named the trustee of the trust.  One benefit of establishing a trust is that there will be specific parameters for using the money.  One of the downsides is that the person maintain the insurance has to do some estate planning to make sure this is set up properly.  (This isn’t necessarily a bad thing – you should always update your estate plan post-divorce anyways.)

Other considerations.  There are a number of other considerations in addition to those mentioned above.

What if it is too expensive?

Sometimes life insurance is cost prohibitive or not available at all.  If someone has previously had a serious health issue they may simply not be able to obtain coverage.  One way of dealing with this is to have that person leave the other person assets in their estate plan which are sufficient to “pay off” the amount owed to the recipient.

Who pays for the policy?

The generally accepted rule is that it is the responsibility of the person owing the money to maintain and pay for the life insurance.  A person who is owed money also has the right to purchase additional coverage on the payor at his or her own cost (i.e., at the cost of the person who is owed the money).

Can I change policies?

A person is typically allowed to change life insurance policies as long as the same amount of coverage is maintained and the beneficiary is notified.  A new judgment will need to be obtained which specifies the new policy information.

Conclusion.

This article covers the main considerations in life insurance, but it is not exhaustive.  You should speak with your mediator or attorney if you have additional questions regarding life insurance in the divorce context.  Once you have a signed judgment, the next step will be to submit the judgment to the applicable life insurance company.

Modifying Your Oregon Divorce Judgment

A divorce (or custody case) is a major life event which is based on the circumstances that exist at the time your judgment is finalized. What happens if things change several months or even several years after your judgment has been signed? Here is a basic guide to modifying your divorce or custody judgment in Oregon. This is only an overview and is not intended to be legal advice – you should discuss the specifics of your situation with your mediator or attorney.

Overview. Generally speaking, child related issues and spousal support are subject to modification. Property division, on the other hand, is final. A property division can only be reopened if you discover that an asset or liability was omitted (either accidentally or intentionally) from your original judgment. ORS 107.452 is the statute that applies if an asset was overlooked in the original divorce.

Child Support. Child support can be modified when 1) there has been a substantial change of financial circumstances; 2) every three years even if there is no change of circumstances; or 3) if both parents agree to the change. It is important to note that a change to child support must be put into a new judgment which gets signed by a judge. It is not sufficient to have a “handshake” deal regarding child support.

In Oregon child support can be paid up until age 21 if the child qualifies as a “child attending school” under ORS 107.108. What this means (oddly enough) is that your child is a party to your divorce between the ages of 18 and 21 and that he or she can file a motion to modify your divorce judgment to seek child support from either or both parents.
Parenting Plan. The legal standard for modifying a parenting plan is simply a “best interest of the child” standard. In other words, if someone thinks it is in the child’s best interest to change the plan, they can make a formal request to change it either by filing a motion with the court or proposing to go through the mediation process.

Like child support, a parenting plan can be modified anytime both parents agree. One-time change do not need to be put into a new parenting plan. However, if you are going to make a permanent change to the parenting plan then you should submit a new parenting plan to the court (using a Stipulated Supplemental Judgment) and get it signed by a judge. You should be aware that a new parenting plan is not enforceable unless it is in a new judgment that is signed by a judge.

There is a common misconception in Oregon that there is a certain age at which children are allowed to pick where they live. That is not true. However, based on the circumstances of your situation (e.g., child’s age, maturity level, etc.), a child’s preference may be taken into account in developing the parenting plan. In certain situations parents will sometimes include their teenage children in the mediation process when developing a parenting plan so that the children’s preference can be considered.

Decision Making (Custody). The decision-making provision of your judgment (i.e., legal custody) is subject to modification as long as your children are under 18. Joint custody can essentially be modified whenever one parent decides that joint custody is no longer working well and files a motion to sever joint custody. At that point the court has to award sole custody to one parent or the other since there can be no joint custody in Oregon unless both parents agree. Sole custody can only be modified when there has been a substantial and unanticipated change of circumstances that goes to the ability of one parent or the other to care for the children.

Spousal Support. Spousal support (alimony) can be modified any time that both parties agree to it. If there is no agreement, then applicable legal standard is that there must be an “unanticipated and substantial change of circumstances” to change support, i.e., a major life event. Just because there has been a major life change does not necessarily mean that support will be modified; it only means that someone can request a modification. Whether or not there is a modification will depend on the facts and circumstances at the time that the request is made.

Common reasons for modifying spousal support include retirement of the payor, the payor losing his or her job, the recipient getting remarried or the recipient changing careers and significant increasing his or her own earnings. Again, just because one of these things happens does not automatically mean that a spousal support modification will be granted.

As with child support, a new spousal support agreement must be put into a new judgment which gets signed by a judge. Failure to put the modified support arrangement into new judgment will make the agreement ineffective and can lead to some very serious negative consequences for one or both parties.

Spousal support can only be modified as long as there is a spousal support order in place. Additionally, spousal support cannot be ordered later on if there was never a spousal support order in the first place. Lastly, if your spousal support order has ended it cannot be reinstated. There is an exception to this rule which is that if spousal support had been terminated early and the reason for termination has ended the spousal support can be reinstated if you are still within the timeframe of the original support award.

Misc. Issues. There are a number of other smaller issues that are subject to modification, although they are typically only addressed if one of the major issues above is also being modified.

Some of those smaller issues include:
• Who will provide health insurance for the children;
• How the children’s unreimbursed medical expenses will be paid;
• How non-medical expenses for the children will be paid;
• The amount of life insurance that needs to be maintained; and
• Who will claim the children on their taxes.

Mediation tends to be a very efficient process for dealing with modifications. Usually a modification can be mediated in just one or two mediation appointments. Once an agreement is reached, Forrest can prepare all of the necessary documents and file them on your behalf. There is a $150 filing fee that gets paid directly to the court each time you file a modification.

What Does Custody Really Mean?

If you had to define “custody” how would you define it? Interestingly, Oregon statutes do not actually define sole custody but they do define joint custody.  ORS 107.169 defines joint custody as “an arrangement by which parents share rights and responsibilities for major decisions concerning the child, including, but not limited to, the child’s residence, education, health care and religious training.”

There are a number of common misunderstandings about legal custody:

Custody doesn’t impact child support. People sometimes think that legal custody impacts child support. It doesn’t. The parenting plan impacts child support but legal custody doesn’t.

Custody is not parenting time. People often confuse custody with parenting time. Custody literally only refers to decision making while parenting time refers to the actual parenting schedule. To illustrate this point, you can have: Sole custody with a 50/50 parenting plan; Sole custody with an every-other-weekend parenting plan; Joint custody with a 50/50 parenting plan; or Joint custody with an every-other-weekend parenting plan.  When we discuss these two concepts in mediation or Collaborative Law we usually talk in terms of “decision making” and the “parenting plan” or “parenting schedule.”

Custody doesn’t automatically allow someone to move out of state. People often think that sole custody automatically allows a parent to move far away with the children. That’s not the case. In Oregon, if there is a contested move-away situation the court looks at what is best for the child. The assumption used to be that if a parent was moving away to get a better job or to get more family support, that would be good for the parent which would then be good for the child. That assumption is no longer made. Now the assumption is that if a child has a regular relationship with both parents, it is best to ensure that those relationships continue.  Mediation is a great option for addressing move-away cases because it allows parents to focus on creating a workable arrangement for both of them  rather than taking a “win-lose” approach to the situation.

So what is custody?

In the mediation or Collaborative process we don’t usually use the word custody. Instead, we refer to it as “decision making.” The phrase “decision making” is more accurate and less inflammatory than the word custody. When we talk about decision making we typically are talking about religious upbringing, school decisions and elective medical decisions. As we see in ORS 107.169, the major decisions “include but are not limited to” these three types of decisions. Realistically, major decisions include any decisions that are coming up where you end a lot of time thinking about the decision, research different possible options, etc.

How is decision-making addressed in mediation and Collaborative Law?

In mediation we begin by asking the question, “How have you made decisions in the past?” We then ask, “How do you envision making decisions in the future?” Often times whatever people have done in the past they will continue to do in the future, although that doesn’t always have to be the case. For example, it may the case that a stay-at-home parent historically made most of the decisions but now that there will be separate households the wage-earning parent begins to take a more active role.

Regardless of the approach to decision-making, mediation and Collaborative Law provide a process for identifying and discussing interests. When we are discussing something as important as making major decisions for your children, it is important that each parent have a chance to discuss the issue from their perspective and feel heard.