Death of a Parent: Securing &
Insuring Child Support
by Wes Cowell, updated 30 April 2016 -- suggest a correction
Both parents' lives should be insured to help guarantee a child's future if one parent dies. Need advice? Call, leave your info, or scheduleschedule a consultation.
Illinois laws (750 ILCS 5/503(g), 750 ILCS 5/505(a)(3)(f) and 750 ILCS 5/510(d) give the court the power to require either or both parents to secure the support of the child(ren) by setting aside property in a trust for the benefit of the child(ren) or by obtaining life insurance. If the parties fail to bring the issue to the court's attention at the time of the divorce they may return to court, later, to secure support against the death of the other parent.
Trusts: The property division part of the divorce law (750 ILCS 5/503(g)) says:
503(g): The court if necessary to protect and promote the best interests of the children may set aside a portion of the jointly or separately held estates of the parties in a separate fund or trust for the support, maintenance, education, physical and mental health, and general welfare of any minor, dependent, or incompetent child of the parties.
750 ILCS 5/503(g) (emphasis added)
Unless the parties agree, these trusts require a finding by the court that their creation is necessary to protect and promote the best interests of the children. They may be invoked only in cases where one parent has demonstrated a will to thwart the usual and customary child support requirements. Consider the case of In re: Marriage of Melamed, 2016 IL App (1st) 141453. Vladimir had a lot of assets and travelled a lot. He lost his job and was still able to maintain his lifestyle. He was less than cooperative in the discovery proces and gave the court no reason to believe he would pay future child support . . . especially if he left the country, as expected. The court imposed a $400,000 503(g) trust to secure his $5,912 / month support obligation for five-and-a-half years.
Life Insurance: The child support law (750 ILCS 5/505(a)(3)(f)) was amended in 2012 and now says:
(3) "Net income" is defined as the total of all income from all sources, minus the following deductions:
. . . .
(f) Dependent and individual health/hospitalization insurance premiums and premiums for life insurance ordered by the court to reasonably secure payment of ordered child support;
In other words, the court may require the obligor to secure the support obligation with life insurance and that the premiums for the life insurance may be deducted from gross pay in calculating support. Remember that support of children is an obligation to be borne by BOTH parents. The better practice is to explain to the court that both parents owe a duty of support to the children and that the obligation should be secured by both parties in amounts proportional to their respective incomes and financial resources.
Note, too, that this law is not like the trust law, above -- it does not require the court to make a finding that the life insurance "is necessary to protect and promote the best interests of the children." The court has the power to secure child support with life insurance in ANY case. Indeed, it should be argued to the court that unless it creates a financial hardship, life insurance on BOTH parents serves the children's best interest and a lack of insurance needlessly puts the children at risk.
Most divorcing couples agree to each maintain life insurance so that in the event of either's death, there will be enough money to take care of the children. Problems arise, however, when a divorcing couple simply names the child as the beneficiary of the life insurance proceeds. Imagine the situation where the child is 17 years and eleven months old and one parent dies with a $100,000 life insurance policy. What will an 18 year old child do with that kind of money? College probably is not on the top of the list.
Imagine, too, the problems than can fester when the divorcing couple doesn't give adequate thought to the finer points of the estate planning process or the terms of the settlement agreement. For example, sometimes the insuring parent names the other parent as the beneficiary. The insurance proceeds usually end up being a windfall for the surviving parent and the child rarely sees much of it. Consider the case Niky and Robert Osborne. In re Marriage of Osborne, 327 Ill. App. 3d 249, 261 Ill.Dec. 606, 763 N.E.2d 855 (3d Dist., 2002). When they divorced, Robert thought he was agreeing to maintain five life insurance policies for the benefit of the children. In fact, the language wasn't clear about that and he ended up paying premiums on life insurance policies for the benefit of his former wife. Robert simply forgot to include language in the settlement agreement saying that the policies were only intended to secure his child support. After his kids had all turned 22, he tried to stop paying on the insurance. Niky objected -- she liked having five policies on Robert's life. Were he to die, she'd be very rich. The court noted that there was no language in the agreement permitting him to stop paying once the kids were all 18, and so he had to continue to maintain the policies on his own life – for the benefit of his former wife, not his kids. His sloppy agreement left him with an unfair burden, and left his former wife with a windfall.
The better practice is to establish a trust with the insurance proceeds – the trustee can see to the proper use of the insurance money (child support? college education?) and make sure that the surviving parent doesn't abuse the child's funds. To avoid these pitfalls, and to secure your child's future, be sure to work with an experienced and knowledgeable divorce attorney who can help with the financial planning and estate planning you will need once your divorce nears its conclusion.
Insurance Should Be Bilateral: Both parents owe a duty of support to their children. Because of this, the lives of BOTH parents should be insured to secure the child's future in the event a parent dies.
Enforcing Support Against Deceased Parent's Estate: If you already have your judgment and the child support section language lacks any life insurance or beneficial trust language, and the other parent dies, Illinois' child-support-beyond-death law (750 ILCS 5/510(d)) says:
(d) . . . . An existing obligation to pay for support or educational expenses, or both, is not terminated by the death of a parent. When a parent obligated to pay support or educational expenses, or both, dies, the amount of support or educational expenses, or both, may be enforced, modified, revoked or commuted to a lump sum payment, as equity may require, and that determination may be provided for at the time of the dissolution of the marriage or thereafter.
This law, like the life-insurance-to-secure-child-support law (750 ILCE 5/505(a)(3)(f)), does not require a finding that the life insurance "is necessary to protect and promote the best interests of the children." In re: Marriage of Schnieder, 343 Ill. App. 3d 628, 798 N.E.2d 1242, 278 Ill.Dec. 485 (2d Dist., 2003).
Child's Award in Probate: Illinois' Probate Law (755 ILCS 5/15-2(b)) also allows the probate court to make a "child's award" from the estate of deceased parent. Such an award by the probate court is separate and independent from an award under the child-support-beyond-death law. Estate of Hudson, No. 5-07-0312, 896 N.E.2d 1123 (5th Dist., 2008).
Constructive Trust: Collecting on Life Insurance Benefits: It's common in divorce and child support cases for the court to require a parent to name a particular beneficiary to a life insurance policy. Sometimes, the parent buys the insurance policy but names a second spouse as the beneficiary. When that happens, the child enjoys an advantage over the named beneficiary:
"When marital settlement agreements require an insured to maintain life insurance for the benefit of a particular beneficiary, that beneficiary has an enforceable, equitable right, to the proceeds of the insurance policies against any other named beneficiary . . . ."
Schwass By and Through Postillion v. Schwass, 126 Ill.App.3d 512, 467 N.E.2d 957, 81 Ill.Dec. 835 (1st Dist., 1984).
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