Securing alimony payments with life insurance is a common practice, even for limited duration alimony. The concept is simple in theory, but there are some complex issues that you should work through with your attorney, prior to finalizing your divorce agreement. First and foremost, you need to verify the maximum amount for which you can be insured. This is easily forgotten by most spouses, who may end up having to renege on a promised amount. In addition to hurting whatever trust exists between the parties, it creates more work and cost to go back to the drawing board.
Once you are sure that you can obtain a certain amount of insurance, you'll need to determine whether the premiums are taxable. In most cases, they're not, but products such as prepaid (lump sum) plans and cash value plans accrue interest, which is taxable. Forgetting to account for taxability could result in oversecuring your alimony obligation, i.e., costing you more money. Another cost related consideration is reducing the amount of alimony each year, for the duration of the term. This is much harder to negotiate for long-term or permanent alimony, but you should at least try, considering the amount that you'll be paying in premiums over so many years.
If you already have life insurance (through your employer, for example), you will still be dealing with most of the aforementioned issues, but you will need to start from a different place. First, determine the type of insurance, which in most cases is either term or whole life. Term policies, which pay out benefits for a specified number of years, may expire before the alimony obligation ends. In that case, you may need to secure additional insurance to ensure that there is coverage until the very end.
Those with employer sponsored plans may also need additional coverage in case they are fired or laid off. If your spouse is going to be heavily dependent on your life insurance benefits, you may need to pay for private insurance, provided that the cost is reasonable. Alimony may also need to be covered through disability insurance, which can be paid out in lieu of support if the obligor is unable to work because of a disability. Again, this would be dependent on whether the cost is reasonable for the obligor.
Agreeing on what is reasonable is hopefully something that can be reached without court intervention. If the issue does need to go before a judge, he or she will examine a variety of factors, including the obligor's income and monthly expenses. These expenses include obligations like child support, mortgage payments and health care for the children, since these are typically long-term, on-going expenses. Accurate evaluations may require an accountant, in addition to an experienced divorce attorney, but it is essential that you get these issues hammered out during the settlement process. For more information on securing alimony payments through life insurance, please speak with the family law attorneys of Villani & DeLuca, P.C.