If you want to make sure there is estate litigation by your ex after you pass away, here are two excellent methods: 1. Get life insurance for, say, $1 million, which would cover your spousal support obligations in the event of your demise, but do not state in your separation agreement that the insurance is “solely” for that purpose. Then unilaterally reduce the payout from $1 million to whatever your ex’s total support entitlement is. Then die. Your ex will sue for the whole million and probably win. 2. Same as #1, but instead of reducing the insurance payout, don’t get insurance at all, even though you promised you would. Then die. Your ex will sue for $1 million and probably win.
To avoid these scenarios, you should insert into your separation agreement a clear statement that — you guessed it — the sole purpose of the life insurance is to cover your spousal support obligations in the event of your passing. (Also, don’t forget to actually get the insurance.)
This important legal lesson comes courtesy of the recent Ontario case Birnie v. Birnie, where scenario #2 occurred: the late Mr. Birnie failed to actually get a $500,000 insurance policy he had agreed to get. His ex sued the estate for $500,000. It was clear Mr. Birnie was in breach of the separation agreement, and the estate needed to somehow make good. The big question was: how much? The estate argued that the insurance he was supposed to get, but didn’t, was linked to his spousal support obligation. Indeed, the separation agreement even said that the insurance must be maintained “for so long as the Husband is required to pay spousal support to the Wife.” Therefore, argued the estate, the ex should only receive whatever she was owed in spousal support, nothing more.
No, ruled the court. On summary judgment, the court decided that even though the separation agreement said the insurance was to be maintained “for so long as the Husband is required to pay spousal support to the Wife,” this did not mean the “sole” purpose of the insurance was to cover support. There may have been other rationales in Mr. Birnie’s head. “For example,” said the court, “spouses have been known to leave property to their former partners in their wills as a show of either affection, appreciation, guilt or regret.” Accordingly, the court ordered the estate to pay the ex $500,000. Perhaps the court saw it as guilt money.
This “sole purpose” test is based on the 2009 Ontario Court of Appeal decision Turner v. DiDonato, where Mr. DiDonato agreed to pay Ms. DiDonato spousal support until she reached 65 years of age. The separation agreement also required him to maintain life insurance benefiting her in the amount of $100,000 until he was no longer obligated to pay spousal support. When he died, he did indeed have life insurance — however, the amount designated for Ms. DiDonato’s benefit was only $43,507.15. She wasn’t 65 yet (she was 56) so Mr. DiDonato was clearly in breach of the terms of his insurance obligation.
The parties agreed that the $43,507.15 Ms. DiDonato received under the policy was equal to, or greater than, the value of Mr. DiDonato’s outstanding obligation to pay spousal support as at the date of his death. Nevertheless, Ms. DiDonato sued for the full $100,000. The trial judge ruled in her favour, as did the appeal court.
“The fact that the commitment to maintain the insurance coverage came to an end at the same time as the support obligations, does not, in itself, connect that commitment to the support obligations,” the appeal court ruled. “There is a conspicuous absence of express language to this effect. Nowhere is it stated that the insurance was intended solely as security for outstanding support obligations should Mr. DiDonato die before Ms. DiDonato reached 65 years of age.”
Furthermore, the appeal court observed that the separation agreement lacked a draw-down provision, which would have reduced the amount of insurance required, in accordance with the diminishing spousal support obligation. “It specifically precludes Mr. DiDonato from adjusting the amount of insurance designated in favour of Ms. DiDonato to account for diminishing future support obligations or for any other reason,” the appeal court noted. “If the parties intended the insurance policy merely as security for the support payments, and nothing more, it would be unreasonable to preclude Mr. DiDonato from adjusting the face value of the policy as the total value of his outstanding support obligations declined.”
The appeal court added that “it is possible, indeed commonplace, for separation agreements to link the obligation to maintain life insurance to the obligation to pay support. This agreement did not do so.” If you want yours to do so, put in a draw-down provision, and make sure to state that the “sole” purpose of the insurance is to cover support.
For advice on family law issues and fertility law issues, contact Shirley Levitan.