Securing Child Support and Alimony with Life Insurance

 

Divorcing parents often have questions about securing child support and alimony with life insurance.   It is common for one side of the divorcing couple to provide child support or alimony to their former spouse.

At times the child or children are young, and child support may be due for over a decade or more.  Similarly, longer marriages often require longer periods of spousal support.  When support is due for extended periods of time, the spouse receiving the support often wonders what will happen if the spouse paying support dies before the support obligation is complete.

New Mexico law enables divorcing spouses to secure alimony and child support obligations with life insurance policies.

 

LIFE INSURANCE CHILD SUPPORT IN NEW MEXICO

 

Under New Mexico law, the parent responsible for paying child support can be required to maintain life insurance to secure/ensure a child’s support payment through emancipation.

The issue of securing child support with life insurance rarely comes up when Child Support Enforcement Division (“CSED”) is not involved with the case.  The issue of securing support with life insurance must be raised by either party – and is rarely a highly contentious aspect of custody or divorce.

When CSED is involved, the issue is almost always raised.  When raised, New Mexico courts will almost always require a life insurance policy to be held to secure one’s child support obligation.  The minimum policy amount required is usually $75,000.

 

SECURING ALIMONY/SPOUSAL SUPPORT PAYMENTS WITH LIFE INSURANCE

 

Alimony/Spousal Support can also be secured with life insurance.  Once again, the issue must be raised by either party.

Spousal support comes in two major forms: modifiable and non-modifiable.  Modifiable alimony means that the support amount can be changed based on a material change in circumstances.

Modifiable alimony ends upon death of the paying spouse, or remarriage of the receiving spouse. The length of modifiable alimony varies based on the length of marriage.  NM courts likely will not require a spouse to maintain life insurance for modifiable alimony because the support payment is for a potentially unknown amount (because incomes may change), and for an unknown duration (because the paying spouse may die or the receiving spouse may remarry).

Unlike modifiable alimony, non-modifiable means that the required alimony has a fixed and clear amount.  For instance, an agreement for non-modifiable alimony may be:

• A lump sum payment for a certain amount (i.e. $50,000 within 60 days); or
• An amount paid each month for a certain duration (i.e. $2,000 a month for 36 months).

Non-modifiable alimony has a fixed and clear amount that is due.  Because of its clear and fixed nature, New Mexico courts will likely require a life insurance policy to secure the non-modifiable alimony – if requested.

 

FACTORS TO CONSIDER WHEN REQUESTING TO SECURE SUPPORT PAYMENTS WITH LIFE INSURANCE

 

As you have read, child support or alimony may be secured through life insurance.  Because of this fact, there are several factors that should be considered when requesting life insurance to secure support payments if the supporting spouse dies, including:

• What insurance policy will be used to secure the support;
• Policy amount; and
• Naming the beneficiary.

 

TYPE OF INSURANCE POLICY TO SECURE CHILD SUPPORT AND SPOUSAL SUPPORT

 

It is important to consider the type of policy held to secure the support payment.  There are a handful of insurance options, including:

• Employer provided life insurance; and
• Insurance company providing full-life and term-life insurance;

The type of policy selected ultimately depends on the total support order, age, and length of support.

 

POLICY AMOUNT — SECURING CHILD SUPPORT AND ALIMONY WITH LIFE INSURANCE

 

The policy amount usually is calculated based on the amount of support needed to secure child support through the child’s emancipation.  Child support usually ends when the child either turns 18, or graduates from high school.

 

NAMING THE LIFE INSURANCE BENEFICIARY

 

For child support, either the child or parent can be named as the insurance’s beneficiary.  Naming the child as the beneficiary may have the following, unexpected issues:

• Providing a lump sum insurance payout to a child will require a guardian to administer the funds;
• The account’s entirety must be given to the child when the child turns 18; or
• The money can be placed into a trust.

Alternatively, the life insurance policy can name the other parent as the beneficiary.  This means that the other parent will receive the lump sum proceeds.

In other words, the parties must decide who will be the insurance policy’s beneficiary.

If the issue of naming the beneficiary becomes a contested issue, the court likely will name the parent as the beneficiary.    The court likely would name the parent as the beneficiary based on the potential trustee issues that can complicate the matter. When possible, NM courts tend to rule in favor of simplifying issues, to avoid potential problems and litigation.

 

HAVE QUESTIONS ABOUT SECURING CHILD SUPPORT AND ALIMONY WITH LIFE INSURANCE IN NEW MEXICO?

 

Do you still have questions about child support or alimony in New Mexico?  For more than a decade, Matthew Sanchez has handled divorce and custody trials all across New Mexico. Talk with an experienced attorney that knows what they’re talking about.  Talk with (505) SANCHEZ today.