Why Do I Have to Have Life Insurance as Part of My Divorce?

In many Denver area divorces, one party or the other will be required to pay child support or alimony (maintenance). Pursuant to C.R.S. 14-10-115, child support is established solely for the support of children. Under Colorado statute, the duty to pay child support generally runs until the last child turns 19 years of age. Pursuant to C.R.S. 14-10-114, alimony may be awarded for the purposes of providing one spouse or the other with the financial support he or she may need to meet his or her basic, necessary financial obligations, provide financial support while gaining additional job training, or perhaps to provide support while a party works on a college degree. There is no set time frame for when the duration of alimony runs. The duty to pay alimony could be for a year, multiple years, or even for life, in some cases.

Whether dealing with alimony or child support, the duty to pay either terminates upon the death of the payer. So what happens to the recipient(s), whether the children or surviving ex-spouse? Their needs do not go away. The law recognizes these limitations and gives the court in a divorce, child custody, or child support case the authority to require the paying party to obtain and maintain a life insurance policy, in a reasonable amount, as a back-up or assurance that the recipients’ needs will be met in the event of death.

There is no set formula for determining the amount of life insurance coverage to be carried. Likewise, orders or agreements regarding life insurance coverage can come in many forms and it can be beneficial to speak with a Denver divorce attorney when formulating agreements or orders tied into this issue.

Generally, the policy obtained will be a term policy. For policies ordered to cover alimony the recipient will generally be named as the beneficiary. Furthermore, the initial, aggregate amount will generally correlate with the overall amount of maintenance to be paid during the ordered duration. However, in some instances, the aggregate amount could be so high that this would be unreasonable. The payer (insured) should always remember to ask for a provision that he or she may reduce the aggregate amount of coverage each year to reflect the remaining aggregate amount owed. This can help keep out of pocket premium costs down, while still adequately providing for the payee.

For life insurance tied into child support, orders will generally be designed to have the children listed as beneficiaries, with the receiving parent being designated the trustee or custodian of the funds. For payers concerns about how the money might be spent upon their death, they should consider adding the word “fiduciary” to the recipient’s designation so as to create a heightened duty to provide for the children with the proceeds. As with maintenance orders, it is legitimate for the payer to ask for an order allowing a reduction of coverage each year to correlate with the descending aggregate of the obligation owed.

In terms of ensuring and enforcing orders tied into these policies, it is advisable to ask for orders requiring twice-yearly proof of coverage and beneficiary designation. Even better, one might ask for there to be a release in place authorizing direct communication with the insurance company so as to directly verify the particulars of coverage.

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