Life insurance as security for children and spousal support has some flaws
From AdvocateDaily this week:
A recent Ontario Court of Appeal (OCA)Â rulingÂ that allows a second wife and child to claim support from a deceased common-law husbandâ€™s life insurance policy raises some important questions and issues, says Ottawa family and estate lawyerÂ Timothy N. Sullivan.
The ruling overturned a Divisional Court decision that found the second wife was not a “creditor” and therefore had no security interest in the policy.
Now the first wife and children, who were irrevocable beneficiaries, are still entitled to receive support from the $1-million policy, with the second wife receiving the remaining proceeds.
Sullivan, principal ofÂ SullivanLaw, says the issue has been in the spotlight because if a payor with a life insurance policy dies intestate, or revokes the beneficiary, the support recipients are out of luck since the insurance company isnâ€™t a party to the separation agreement.
â€œIf thereâ€™s no money available, then too bad, so sad,â€ Sullivan tellsÂ AdvocateDaily.com.
â€œIt is a challenge for family lawyers to assure clients in the event somebody dies who is paying support doesnâ€™t name you as an irrevocable beneficiary. So we provide things in the agreements such as requiring the payor to prove the recipient is a designated beneficiary, or if thereâ€™s a lapse in premiums, the recipient can pay those premiums and be reimbursed.â€
Sullivan says he questions the result of the recent OCA case because it is not clear if they were common-law spouses by Ontario law. According to the decision, they were living in different countries and visited often. The woman became pregnant in the final months of the manâ€™s life.
â€œIs she a dependent? It was a very short-term relationship,â€ Sullivan says. â€œI had a case where a couple had a child together but didnâ€™t live together so thereâ€™s no spousal support entitlement. You have to cohabit.â€
To read the rest of the article, visitÂ AdvocateDaily.