If you have gone through a drawn-out mediation or trial in order to resolve timesharing, child support and child custody during your Florida divorce, then you may think there are no more issues associated with child support until your youngest turns 18 and you no longer have to pay. This may not be entirely true. While the Florida courts require both parents to contribute to the financial needs of the children—to the extent possible—what would happen if one parent unexpectedly passes away, leaving the other a single parent?
It is important to realize that should the death of a parent occur, one parent will have the children 100 percent of the time, which means there would also be an increased financial burden on that parent. If you are the parent with primary custody, receiving child support from the other parent, the loss of that child support could severely impact your ability to raise your children. If you are the parent paying child support, the loss of the parent who has primary custody would mean the children would live with you, potentially impacting your ability to generate the income you currently make.
The Solution to the Problem
Florida Statute § 61.30(c) gives Florida Courts, the authority to order the parent paying child support to maintain a life insurance policy protecting the child support award. Prior to making such an order, the court is obliged to consider the following:
- How much the life insurance will cost the parent;
- The extent of the need for the life insurance policy;
- The availability of the life insurance, and
- How much financial impact the order to provide life insurance will have on the parent.
How is the Amount of Life Insurance the Court Orders Calculated?
If you are the parent paying child support, and you decide to purchase a life insurance policy on your own, simply to ensure your children are financially taken care of in the event of your death, then the amount is up to you. If, however, the court has ordered you to purchase life insurance, you cannot be ordered to purchase more life insurance than your child support obligation. Your “term” would encompass every child reaching the age of 18, or graduating from high school, depending on your agreement. As an example, assume you have three children, who are currently ages 15,16 and 17.
Your annual child support is $7,200 per year for all three children, or $2,400 for each child per year. You would then have approximately one year of child support left to pay for the eldest child, approximately two years for the middle child and approximately three years for the youngest child (your exact amount would be calculated down to the month). This means you would have six years x $2,400, or $14,400. In this instance the court might order you to purchase a $15,000 life insurance policy. While this is a fairly simplistic calculation, it gives you an idea of how your life insurance amount might be calculated by the court.
Do You Have to Name Your Ex as the Beneficiary?
If you and your ex have a fairly contentious relationship, you may not be too inclined to want to name her/him as the beneficiary of your life insurance police. After all, what if the money is spent, not on the children, but on your ex’s new spouse? While you can name a minor child as beneficiary of your life insurance, the insurance company will not pay the proceeds directly to the minor child. In all likelihood, probate court would appoint an adult to handle the money until the child reaches the age of 18, and that adult could be the remaining parent. Naming the child as beneficiary means the life insurance proceeds would have to go through probate—an expensive and time-consuming process.
Naming a Custodian to Your Life Insurance Policy
As an alternative, you can name your own adult friend, relative, lawyer, etc. as the custodian of the policy, designating it for the benefit of your children. This would eliminate the need to name your ex as the beneficiary, while ensuring your children would receive the money you want them to receive. There is a negative aspect to this solution as well, however. You must designate a person you completely trust to disburse the life insurance proceeds as you desire, since you are not allowed to set up conditions of how the money is to be allocated.
The Best Way to Ensure Your Children Receive the Proceeds from Your Life Insurance
One way you can avoid all the potential problems associated with your life insurance policy is to name a trust as the beneficiary of the life insurance policy. The policy will pay into the trust upon your death, and the designated trustee will handle the money until the minor child or children reach the age of 18. By having a trust, you are able to clearly spell out how you want your life insurance proceeds to be disbursed.
Perhaps you would designate that the regular amount of child support would be paid monthly as usual, then when all the children have reached the age of 18, or 21, or whatever age you choose, the remainder of the life insurance proceeds would be divided between them. By setting up a trust you also avoid probate, meaning there will be no expense involved, and the money will be available to your children immediately. If you happen to have very young children, you will need to ensure there is enough life insurance for the 15 or more years of child support you would have paid. Many parents buy as much life insurance as they can afford, over and above the court-ordered amount, simply to make sure their children have a good financial start in life.
Why Both Parents Should Have Life Insurance
Even if the parent who is not paying monthly child support payments is not court-ordered to maintain a life insurance policy, if you are that parent, ask yourself how your ex would be able to take care of the children in the event of your death. If you are the primary caregiver, it is important to calculate the cost of childcare, plus the costs your ex would incur if he or she were to have the children full-time. Just because child support payments or lack of those payments is not at issue, there is a fairly steep financial cost associated with childcare. Both parents, regardless of whether it is court-ordered or not, should seriously consider having life insurance for the benefit of their children, in the amount they can comfortably afford.
What is Windfall?
If a large life insurance is paid out when there is actually a very small remaining amount of child support obligation, this is known is “windfall.” Perhaps the policy was taken out when four children were very small, and now the last one is about to graduate. There is a way to eliminate this windfall, by setting up a decreasing schedule of required policy proceeds, depending on the ages of the children. This would allow the paying parent some flexibility, particularly if he or she now has additional children with another spouse, and wants to ensure those children are taken care of as well.
Should Your Life Insurance Policy Cover College Expenses as Well?
While the court may or may not mandate that the life insurance policy of the parent paying child support cover college costs for the children, many parents will do this on their own, increasing the amount of the policy to cover these expenses should that parent die. If, however, your divorce settlement does specify you or your ex will be responsible for helping the children financially through college, you may be required to add enough to your life insurance policy to ensure they would receive this financial assistance, even in the event of your death. If both parents can afford such a policy, it is a good idea to have this level of life insurance in place, even if the court does not order such a policy.
What About the Mortgage on the Marital Home?
Depending on your situation, either you or your spouse may be remaining in the marital home in order to ensure the children have the security and stability they need, during this difficult time. If there is a mortgage on the home, the life insurance policies might include this amount. This would ensure the mortgage was paid in full should either parent die before the children are grown and out on their own. If one of the spouses is responsible for the mortgage, the court could potentially order that spouse to carry enough life insurance to pay off the mortgage in the event of their death.
Existing Life Insurance Policies
In many cases, one or both parents may have existing life insurance policies at the time of the divorce. If you are court-ordered to maintain a life insurance policy to secure child support payments, you might consider—if you are able financially—purchasing a separate policy to secure those obligations. This would allow you to change beneficiaries on your original life insurance policy, including those policies which may come as a part of your employment benefits.
One of the reasons for maintaining two policies, is that it allows you some privacy from your ex. The life insurance policy mandated by the court is a part of your divorce settlement, therefore must be an open book, so to speak, to your ex. Perhaps you want a life insurance policy which has nothing to do with your divorce. You may have a new spouse, children from another marriage, or children from a future relationship that you want to provide for, and a separate life insurance policy allows you to do that.
Claims on an Estate
If there was no court-ordered life insurance, and the parent paying child support dies, his or her estate will be responsible for child support, including any past due amounts. Once the estate is opened for probate, the ex-spouse (or even the Florida state child support enforcement agency) can file a probate court claim against the estate for back child support. The executor of the deceased parent’s estate can prevent future child support payments from accruing by notifying the court or the Florida state child support enforcement agency of the parent’s death. In most cases, the estate will be required to pay obligations for child support before any other assets are disbursed to named beneficiaries in the will.
What About Spousal Support and Life Insurance?
Depending on the divorce agreement, the court may also order the spouse who is paying spousal support to secure those payments through life insurance. Despite the fact that spousal support per se ends upon the death of the payor spouse, the receiving spouse may be allowed to secure spousal support payments he or she would have received via a life insurance policy. Like a life insurance policy for the children, a life insurance policy to secure spousal support payments can go through a trust in order to prevent the expense and time required for the estate to go through probate.
Important Issues Regarding Divorce and Life Insurance
It is crucial to remember that when a former spouse is listed as the beneficiary on the ex-spouse’s life insurance policy, even when a new spouse is listed as a beneficiary in a revised will until the beneficiary is actually changed on the policy, life insurance proceeds will still be paid to the ex-spouse. If you are trying to decide between term life insurance and whole life insurance (which accrues a cash value), experts typically will recommend term insurance. Term life insurance provides insurance protection at a significantly reduced premium cost when compared to whole life insurance.
With term life insurance you are also able to choose decreasing insurance if you are the one who pays child support. This means the death benefits of the policy decrease as your children get older. If you are a parent dependent on child support, it is a good idea to ask for yearly confirmation that the policy is still in place, in order to avoid finding out at the worst possible time that the policy has lapsed due to non-payment. Some divorce decrees use the threat of a penalty to ensure the premiums are consistently paid and that the beneficiaries are not changed. Your Ayo and Iken attorney can answer any questions you may have regarding your life insurance and child support.