After so many years of practising in family law I thought I’d heard everything. This week was one of those occasions when for the first time the concept of divorce insurance was raised with me.
After much shaking of my head, a few questions of colleagues and some time spent searching the internet, I am now far better informed about the topic. It was partly research on that topic that lead me to the study of J Zagorsky which was the topic of my earlier blog – Will divorce send you broke? It appears that there are a few types of divorce insurance available on the market.
One type is not really insurance but more a means of financing litigation where there is a dispute over dividing the assets of a marriage. It was titled divorce insurance but it provided for a one off payment of 40% of the worst case scenario amount that someone was likely to receive from their divorce settlement.
The costs of this finance was 10% of the amount funded. For example if your worst case scenario was to receive $100,000 from your property settlement then you could obtain finance for 40% of that, being $40,000 at a costs of $4,000.
What can more truly be described as divorce insurance, as far as I can see, is not currently available in Australia. I’m not aware of any obstacles to such policies being offered here soon. They are designed to make a payment to the insured person in an agreed amount up to $250,000 upon finalisation of their divorce settlement. Some policies would make part payment upon finalisation of a legally binding settlement agreement and the balance payable on divorce. Each of the insurance providers require the payment of monthly premiums and the policy holders were prevented from making any claims for periods between two and five years depending on the policy.
All of the policies I saw required the payment to be made to the policy holder, who had to be one of the parties to the marriage. There could be no nominated beneficiary. The irony I see in this, under Australian family law ( and some family lawyers in the US expressed a similar view) is that any payout pursuant to such a policy would form part of the property to be divided in a property settlement.
I remain sceptical of the wisdom of people entering into a marriage or in a marriage planning the eventuality of separation or divorce. I question whether, given the findings in Zagorsky study, the premiums spent on divorce insurance could be better invested in the relationship, or at worst, in some relationship counselling.