When couples separate and negotiate child or spousal support, it is not unusual to have a paragraph in a separation agreement or court order that the payment of support is “secured” by a life insurance policy on the life of the payor, in the event of his or her untimely death. The rationale, of course, is that there will be a fund of money to draw upon if the payor’s death occurs while he or she is still obligated to make support payments.
A recent case from the Ontario Superior Court considers whether a “secured” spouse is entitled to receive ongoing support from the policy or whether the entire life insurance policy is payable to the former spouse.
In Birnie v. Birnie, 2019 ONSC 2152 the Court focused on determining whether the payment of life insurance is contained in a “stand alone” clause that entitles the beneficiary to the entire policy or whether it is clearly only intended to provide security for future payments.
The facts are straightforward. Lawyer Michael Birnie separated from his wife after 15 years of marriage. Their separation agreement dated October 19, 2004 included the provision that he would obtain a life insurance policy in the amount of $500,000 and name his former spouse, Janice Birnie, as the irrevocable beneficiary, which would be kept in place so long as he was obligated to pay spousal support. The paragraph read:
“The Husband undertakes and agrees to obtain a life insurance policy on his life in the face amount of $500,000.00. The Husband will designate the Wife as the irrevocable beneficiary under the terms of the aforementioned life insurance policy; with the beneficiary designation to continue for so long as the Husband is required to pay spousal support to the Wife. Upon the execution of the Separation Agreement by both Parties, the Husband will forthwith provide documentation to the Wife confirming the details of the life insurance coverage, confirmation of the face amount of the policy, and confirmation that the Wife is designated as beneficiary under the terms of the said policy. In addition, the Husband shall provide a direction and authorization to the Wife addressed to the life insurer allowing the Wife to obtain any and all information that she may require directly from the life insurance company with regard to the details of the life insurance designation outlined herein.”
Upon her former husband’s death, she brought a court action in regards to her interest in the life insurance policy, a step that revealed that Mr. Birnie had not obtained the policy he agreed to purchase. As a result she brought a claim against his estate, the executrix and beneficiary being his second wife.
While Ms. Birnie took no court action to confirm that the life insurance policy was in place, she did send her former husband an email in 2014 asking that he provide her with the proof required by the separation agreement.
Relying on Turner v. DiDonato 2009 ONCA 235 the Court held that the language of the life insurance policy indicated a “stand alone” benefit, entitling Ms. Birnie to the sum of $500,000, despite the reference to “the beneficiary designation continuing only so long as the Husband is required to pay spousal support to the Wife.”
The Court provided the following analysis:
a) The agreement contained no express language that the sole purpose of the insurance was to secure support;
b) The releases in the agreement made clear that the agreement constituted a full and final settlement of all issue, which precluded a finding that the insurance was intended solely as security, as such a finding would lead to further litigation;
c) There was no “draw down” clause whereby Mr. Birnie could lower the amount of insurance as his support obligation diminished.
As a lawyer who has drafted hundreds of separation agreements, this decision is a wake-up call for lawyers who believe that a paragraph indicating that life insurance is “security for support” is sufficient to ensure that the payor’s entire policy is not lost to a former spouse.
Lawdiva aka Georgialee Lang