Typically when spouses enter into a separation agreement where there is an ongoing spousal maintenance and/or child maintenance obligation the obligation is “secured” by stating that the payor will maintain life insurance and designate the payee spouse as irrevocable beneficiary of the insurance.
In a recent case before the Ontario Court of Appeal Dagg v. Cameron Estate 2017 (ONCA) 366 the payor spouse died leaving no estate but he had a $1,000,000 life insurance policy which he had designated his former spouse and children as irrevocable beneficiaries.
His new spouse (and child) were left with no money so she sued his estate to get the $1,000,000 life insurance policy.
The Ontario Court of Appeal upheld the provision in the separation agreement and the former wife got the life insurance but only enough of it to pay her outstanding spousal maintenance and child maintenance claim. The balance of the insurance was therefore available for the deceased’s second family.
This decision is important because spousal maintenance and child maintenance obligations are frequently secured by life insurance as part of separation agreements. Now we have a Court of Appeal decision which says that those clauses will stand up.
Deborah A. Todd