All in the Family: Life insurance as security for child support

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On Feb. 5, 2018, the Minnesota Court of Appeals issued a lengthy, yet unpublished, opinion concerning an obligor’s responsibility to maintain life insurance as security for child support payments — and the consequence to his heirs if he or she fails to do so.

In Hall v. Reynolds, Mother married Father in 1994. The marriage of the parties was dissolved in 2003. As part of the stipulated judgment and decree, Father was required to pay child support to Mother. Moreover, Father was required to maintain a life insurance policy in the amount of $100,000, naming Mother the sole beneficiary as long as he had an active support obligation.

Father died in 2014. At the time of his death, he had an active support obligation relative to the parties’ two children. Despite the terms of the Judgment and Decree, Father did not maintain a life insurance policy naming Mother the beneficiary.

Instead, Father obtained two life insurance policies in 2012 that named his mother (paternal grandmother) sole beneficiary, and the two children as contingent beneficiaries.

In the months leading up to his death, Father changed the policies and named his Fiancée as primary beneficiary. Fiancée received approximately $530,000 from the policies following Father’s death.

A probate file was opened in Wright County. Mother filed a motion to have $100,000 deposited as security for her claims against Father’s estate. The court, citing a lack of subject matter jurisdiction, denied the motion.

In response, Mother filed an unjust enrichment suit against Fiancée. Both parties moved for summary judgment. The District Court found in favor of Fiancé. Mother appealed.

The standard of review on appeal of a summary judgment involves whether there are any disputed issues of material fact, and whether the District Court properly applied the law. The Court of Appeals reviews the evidence in the light most favorable to the party against whom summary judgment was entered.

Judge Francis Connolly noted that to establish a claim for “unjust enrichment,” Mother must show: (1) a benefit conferred; (2) fiancée’s appreciation and knowing acceptance of the benefit; and (3) fiancée’s acceptance and retention of the benefit under such circumstances that it would be inequitable for her to retain it without paying for it.

The Court of Appeals ultimately determined that the District Court did not err in ruling that the claim of unjust enrichment was not met in this instance — suggesting that Fiancée had no “knowledge” of the life insurance provision in Father’s divorce decree before his death.

Still, the court considered other theories of relief. It examined Head v. Metropolitan Life Ins. Co., 449 N.W.2d 449 (Minn. App. 1989), review denied (Minn. Feb. 21, 1990) and Thiebault v. Thiebault, 421 N.W.2d 747 (Minn. App. 1988).

Pursuant to the Head and Thiebault cases, a dissolution decree is binding upon a subsequent beneficiary. Both cases provide relief for the wronged beneficiary, but do not do so under a theory of unjust enrichment. The divorce decree ultimately controls.

According to Connolly, Thiebault allows for a constructive trust to provide for future financial security in circumstances where a divorce decree names one beneficiary and the obligor violates that order by assigning a different one.

He noted that “[F]ather’s act of disregarding his own dissolution decree is a sufficient basis for the district court to impose an equitable remedy on the wrongfully assigned benefits even though the recipient of those benefits did nothing wrong. To do otherwise would reward obligors who knowingly violate provisions of their dissolution decrees.”

In addition to the issue of whether Mother was entitled to “some” of her court-ordered life insurance benefits, the Court of Appeals answered the question of “how much” she should receive. Was Mother’s recovery limited to the value of the remaining support award, or the $100,000 value outlined in the divorce decree?

According to the court, “[i]n interpreting a provision of a stipulated judgment and decree, we must determine whether the provision is ambiguous, and if it is unambiguous, then there is no room for construction and the plain language controls.”

Fiancée argued that, although unambiguous, the provision is meant solely to secure Father’s child support obligations in an amount not to exceed the value of all future support payments.

The Court of Appeals disagreed, and opined that “Fiancée’s interpretation completely ignores the fact that the provision unambiguously states who the required beneficiary is [Mother] and what the policy amount must be [$100,000].”

Ultimately, Fiancée’s claim failed because the decree set the $100,000 amount regardless of whether Father died a year after entry, or a year before his support obligation was set to expire.

In reversing, Judge Connolly concluded that “the district court on remand should enter judgment in favor of [Mother] in the amount of $100,000 plus whatever statutory interest, costs and disbursements apply in this case.”

In our experience, “life insurance as security for support” provisions in a divorce decree are often overlooked, or crafted without significant thought concerning terms.

Think about the long-term consequence to your client, or the minor children, if an obligor dies without life insurance as security. Costs for coverage are relatively nominal.

Quite often, we reach agreements that call for both parties to maintain life insurance for the benefit of the other. Kids stand to benefit far more than the obligee — particularly if the parties do not have a high net worth.

If a client in that situation is worried about their ex doing something funky with the money, set up a simple trust to allow a third-party to make the call concerning disbursements.

If you do reach agreement concerning life insurance, two options are most prevalent.

The obligor can agree to an amount of life insurance equal to projected future support payments, or a static amount (as in Hall). There is no “right” answer, but terms should be made clear — rather than simply saying a client is demanding, or willing to agree that, “life insurance will secure future support payments.”

Another nagging issue involves an absence of placing such an agreement on the record, but then trying to include it in the final draft of the decree. It is clear that the issue is discretionary with the District Court pursuant to Thiebault. Following a trial, the court may impose an obligation to secure support payments with life insurance.

Is that true, however, if the parties avoid trial by placing an agreement on the record that doesn’t reference life insurance? There is no clear answer.

On one hand, the court is required to make specific findings in support of the life insurance mandate. How can a judge make a finding absent testimony or exhibits?

On the other hand, District Court judges have been permitted to modify a stipulation by incorporating a finding that lands outside the four corners of the parties’ agreement – as in the Nelson matter at 444 N.W.2d 302, 304 (Minn. Ct. App. 1989). While Nelson dealt with bankruptcy protections inserted in a judgment and decree, rather than life insurance, it seems to apply by analogy.