Saturday, February 02, 2013

New Family Law Act and Support Obligations After Death

British Columbia’s new Family Law Act, which comes into effect on March 18, 2013, provides that the court may order spousal or child support to continue after the death of the spouse or parent who is obligated to make the payments. Before making such an order under section 170 (g) the court must consider the following factors under section 171 (1):

(a) that the person receiving child support or spousal support has a significant need for support that is likely to continue past the death of the person paying child support or spousal support; 
(b) that the estate of the person paying child support or spousal support is sufficient to meet the need referred to in paragraph (a) after taking into account all claims on the estate, including those of creditors and beneficiaries; 
(c) that no other practical means exist to meet the need referred to in paragraph (a).

If the court makes an order that support continues after the death of the person whose obligation it is to pay support, and the person dies, his or her personal representative may apply to court to change, suspend or terminate the support payments. Similarly, if there is an agreement that the support will continue after death, then the personal representative may apply to set aside the agreement or for an order in place of the agreement to pay support.

On the other hand, if a support order or agreement is silent as to whether support continues after the death of the person paying support, then on the death of the person required to pay support, the person receiving support may apply to court for an order that the support continues after death. The support obligation then becomes a debt of the estate.

These provisions in section 171 provide flexibility for the court to consider the circumstances following the death of the person making support payments.

But the new legislation is not a good substitute for careful planning.

Consider a hypothetical example. Following the breakdown of his marriage, the husband agrees to pay child support to his former spouse. He remarries, and he and his second wife buy a home together which they own as joint tenants. They hold all of their savings in joint accounts. This is a fairly common way for spouses to own their assets. He dies before his children grow up and while he is paying child support to his former spouse. On his death, his interest in his house and savings pass by right-of-survivorship to his second wife, leaving little or nothing in his estate. Accordingly, there are insufficient funds in the estate to make further child support payments even if the agreement provides for support to continue after death, or if the former spouse makes an application to court for support to continue.

One effective way to plan for this possibility is for the separation agreement to provide that the husband will have a life insurance policy while obligated to pay child support. The life insurance would either be payable to his former spouse, which would provide her with funds for the children, or to a trustee, who would then make the child support payments out of the life insurance proceeds if the husband dies.

Using life insurance would then give the husband flexibility in structuring his estate plan, while ensuring that funds are available to support his children if he dies before they become self-supporting. Life insurance can be used in the same manner to fund spousal support obligations

Life insurance is particularly practical when the person making support payments is relatively young, and premiums low, but alternatives need to be considered if the premiums are high or if the person paying support is not insurable.  

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