Archive for February, 2011

Life Insurance in Divorce

Thursday, February 24th, 2011

Divorcing spouses and parents have varied life insurance needs.  Whenever one or more persons are financially dependent on another’s earnings there is what the life insurance industry refers to as an insurable interest.   In families of two married parents with young children the primary wage earner often has life insurance coverage equal to several years earning.  The benefit to the financially dependent spouse and the children is obvious.  The benefit to the insured party is the peace of mind that comes from knowing your loved ones are provided for in all events.  Often both spouse carry life insurance coverage because both are employed or, if one is not employed, the stay at home spouse is providing services that would have to be purchased in the event of her, or his, untimely death.

            Upon divorce in families with children there is still the same basic economic need for life insurance coverage to protect the child support payments.  The children generally would be the beneficiaries of the policy – directly or through a trust.  The insured still benefits from knowing his loved ones will be provided for.  Life insurance proceeds paid during the insured’s children’s minority would be needed and would benefit the insured’s children just as they would if he or she died while the children were minors and the insured was married to the other parent at death. 

            But the dynamic is different in divorce.  The insured views the insurance coverage as benefitting the future ex-spouse.  Often there is hard bargaining around how much insurance coverage there will be, how long it will be in place or how quickly it decreases,   and whether the spouse can be the trustee of the trust to which the insurance proceeds are paid.    I’ll explore this further in future posts.

Is the Recession Affecting Your Marriage?

Tuesday, February 15th, 2011

The Washington Post reports that a University of Virginia study found that 29 percent of married couples said the recession has put financial stress on their marriages. About a third of married individuals said this led to a deeper commitment to their marriage. 38 percent of married persons who were considering divorce before the recession, postponed splitting up due to the recession. The authors attribute that to the financial costs of divorce.

The study examined the effect of level of education and religious attendance – lower educational levels and less or no religious attendance together were both correlated with higher incidence of marital stress. The effect of the presence or absence of children was not examined in the study.

So it appears that the recession is causing financial stress in many marriages. Paradoxically this is not leading to more divorces. The UVA survey indicated that some couples are renewing work on improving their marriages. But perhaps some are just living with unhappy marriages until they can afford to separate and divorce. If so, will the recovery mean more divorces?

Introduction to Divorce and Money

Wednesday, February 9th, 2011

It’s been said that money changes everything. Money and finances certainly affect marriage and divorce.

It’s not always easy to sort out how to analyze all the financial issues that arise in divorce. “Our money” is going to become “my money” and “your money.” So “I” want more of “mine” and less of “yours”.

But “our kids” will still be our kids. So it’s not so easy to know whether I want more child support, more life insurance coverage, more college costs commitment, and so forth.

Sometimes when you get “more” I still get the same, like social security benefits. And sometimes you get a relatively lot more if I’ll take a relatively little less, for example pension survivor benefits.

We are going to take a look at various financial issues in divorce in a series of articles. We’ll look at how divorce changes, or does not change, the analysis of issues like college costs, life insurance needs, housing costs, social security, pensions, financial planning and other topics.

Paying for the Children’s College

Wednesday, February 9th, 2011

Lots of parents of high school students are thinking about college this time of year – and how they are going to pay for it. Like many aspects of being a parent, divorce changes the how-to-pay-for-college issue in some respects.

In the absence of an agreement, the judge cannot order you or your spouse to pay the costs of your children’s college education in Maryland or Virginia. A spouse may agree to pay or contribute to college costs in return for the other parent’s promise also to contribute, or for some other promise.

You can agree to pay all college costs, but a frequently used cap is the cost of in-state tuition plus room and board at University of Maryland or University of Virginia. You can also define which costs are included and which costs are not included.

Other issues to consider are: Do the costs of any post-secondary training qualify or just traditional college? Will your child have to be a full-time student. Will there be a time limit on completion?

An agreement should clearly define the allocation of costs between the parents. Consider whether to provide for annual contributions to a Sec. 529 account or other account for the child or children. Generally, the agreement should provide that the parents’ obligation arises only after all 529 accounts and other resources of the child have been applied to college costs.

Make it clear that Mom and Dad are exchanging promises and neither of you are promising the children anything. As parents you reserve the right to jointly decide that your son or daughter is not ready for college or it is not the right choice for him or her and decline to pay for it.

Remember that once agreed by the parties and incorporated into the judgment of divorce the promise to pay for college is enforceable by a suit on the contract or by contempt of court. See Brodsky v. Brodsky, 319 Md. 92; 570 A.2d 1235; 1990 Md. LEXIS 45 (Md. 1990) where the court, construing the parties’ contract, held that Father had to pay for tuition at Boston University not a “more reasonably priced” college and he was not entitled to apply UTMA funds belonging to the child to his contractual obligation to pay college costs. Even if you are unable to reach a satisfactory agreement regarding college at the time of the divorce, you may be able to work it out when your child reaches college age.

 
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