Insuring That Your Children Have the Support They Need — Part I

{4:00 minutes to read} Life insurance is not a topic most people are eager to speak about, let alone if you are separating. But life insurance is a topic you should be prepared to discuss in your mediation.

Under New York law, a judge may order a party to obtain and maintain life insurance coverage naming as beneficiaries either the children (for child support) or the spouse (for maintenance) for so long as the party is obligated to pay child support and/or maintenance.

While you don’t have a judge making orders in mediation, you do want to be sure that there are provisions for life insurance in your agreement if spousal or child support are being paid.

Here are some things for you to consider:

Naming the beneficiary

• Your spouse needs access to the life insurance proceeds because he or she will no longer have your contributions towards the support and care of the children for their direct and indirect expenses.

However, you may not feel comfortable naming the spouse as beneficiary. And even if you have the utmost trust and confidence that the spouse will use those funds solely for the children, unexpected things could happen, such as if your spouse remarries without a prenuptial agreement or dies without appointing someone to take care of the children — and the funds meant to support them. Events of this type would put those funds at risk. 

• You wouldn’t want to name minor children as beneficiaries of large sums of money for obvious reasons. Moreover, Surrogate’s Court would appoint a guardian to oversee any money they receive, and that guardian will need the permission of the court in order to use the money. This means your spouse may not be able to access those funds for day-to-day expenses when needed. 

• One alternative could be to designate your spouse as the custodian of a Uniform Gift to Minors Act (UTMA) account. The money would belong to the children but be under the control of the spouse until the children reach age 21, at which time the custodian would need to transfer the funds to the child. 

• Another alternative, by which you could exercise more control over the use of the funds and keep them in trust until the children are older than 21, would be to create a life insurance trust. Appoint your spouse as trustee to manage and use the funds on behalf of the children, including the ability to use the proceeds to the extent that you would have been obligated to pay child support and other expenses on behalf of the children.

In Part II, I will address options if you are unable to obtain life insurance and why it’s important for both of you to have it, even if only one of you is paying child support.