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Appellate Court Upholds Life Insurance Coverage
July 20, 2005
If the much-publicized case of Terri Schiavo wasn’t enough to make you reconsider the importance of good estate planning, a recent Wisconsin Court of Appeals case re-emphasizes that point.
This is the second of two articles discussing the recent decision of the District II Court of Appeals in Vlies v. Brookman, No. 2004AP315 (Wis. Ct. App. Jun. 15, 2005) (recommended for publication)
In the case, the trial court, Ozaukee County Judge Paul V. Malloy, ordered Adam Brookman to pay family support and to maintain a total of $750,000 in life insurance coverage for the benefit of the parties’ three minor children. The appellate court reversed the award of family support, but affirmed the order regarding life insurance. My previous article examined the reversal of the family support order; this article will examine the affirmance of the life insurance order.
In the case, Brookman argued that there was no statutory authority for the trial court to order him to maintain life insurance with the children as beneficiaries. The court of appeals affirmed, but it also hold that that life insurance coverage can be part of the child support order “where the record so demonstrates.” The court of appeals remanded the life insurance issue in light of the remand on child support, but the holding supports the authority of a trial court to order life insurance coverage under appropriate circumstances.
The end result is a positive one. The death of a support payer (and many times, of the payee, as well) can create financial distress for children. While life insurance to protect a family from the untimely death of the wage earner is a good idea for even intact families, given the financial hardships of divorce, requiring such coverage is a frequent part of divorce stipulations. Still, until now, it has not been clear that courts have the inherent authority to make such an order, absent the stipulation of the parties. Vlies answers that question.
While answering the question, however, Vlies continues the long tradition of Wisconsin appellate courts of treating family courts as courts whose power is purely statutory in some cases and on other occasions, as courts with broad equity powers, an inconsistency previously discussed in my column “Courts of Equity – Or Not?” (Wisconsin Law Journal, December 18, 2002.)
For example, in a case involving a custody order of a child involving a non-traditional family, the supreme court held that Wisconsin courts have broad discretion to fashion orders which serve the best interests of children. In re Custody of H.S.H-K, 193 Wis. 2d 649, 533 N.W.2d 419 (1995). On the other hand, the court of appeals has held that trial courts cannot order a future change in custody premised on circumstances which might occur in the future, because the power of the court is limited to those specifically conferred by statute. Koeller v. Koeller, 195 Wis. 2d 660, 536 N.W.2d 216 (Ct. App. 1995).
Practitioners should be careful how they craft life insurance requirements. There need to be termination events, usually a child attaining majority. However, where the children will likely attend college, extending this requirement until a later age is recommended. At the same time, if there are multiple children, terminating the requirement for older children as they “age out” may result in an inequity among the children. Too, if the requirement continues past age 18, there is a risk of a newly-minted adult receiving a cash payout which he or she may not be capable of managing.
The solution to both of these problems is through estate planning. Divorce requires restructuring finances in any event, so it is a good time to get one’s estate in order. Requiring life insurance proceeds to be paid to a trust for the benefit of a child can provide flexibility for children whose financial dependency continues past high school, while assuring that the money will be appropriate spent rather than wasted.
This article originally appeared in Wisconsin Law Journal.