Divorce insurance? Now I’ve heard everything!

by Peter Magee on October 28, 2010

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.  

{ 2 comments… read them below or add one }

John Logan October 31, 2010 at 8:46 am

Peter,

WedLock Divorce Insurance (http:www.wedlockdivorceinsurance.com) is currently available globally – including to residents of Australia. In many states here in the US there is legal precedent that precludes an ex-spouse from entitlement to insurance proceeds where the policy has no accrued cash, loan or surrender value during the marriage. WedLock Divorce Insurance policy claims are paid only AFTER the divorce is finalized, so we expect that claim payments will be treated much like auto or home insurance. In that regard the insurance premiums paid during the marriage are viewed similar to Term Life policies. In other words, payment cannot be seen as a marital asset since it occurs only after the divorce is finalized. I do not know what the laws are in Australia, but in any event, since these are individual policies, we advocate that both spouses have a policy so that they would provide equally for both upon a divorce. Feel free to contact me directly to find out more about WedLock Divorce Insurance and how Family Law attorneys are using our policies to the advantage of their clients.

Also, I am unfamiliar with the first form of “divorce insurance” you referenced. Please send me a link to that information.

John Logan
CEO
SafeGuard Guaranty Corporation

Tricia Peters January 5, 2011 at 1:23 pm

Peter, I too was surprised by the availability of divorce insurance and surprised by the divorce cost calculator and divorce predictor on the SafeGuard website. I came up as a strong probability for divorce so imagine my premium would reflect that probability. Like you, I think the money would be best spent on the relationship. Perhaps my best insurance, given my high probability of divorce, would be a BFA! There is a train of thought that says that the preparation of a BFA, during happy times, leads to a deeper commitment to the relationship as the couple frankly discuss the issues that are important to them and commit themselves to a contract based on a shared commitment. Ideally the contract would be updated every 5 years or in the event of a significant life event.

Tricia Peters
Director
Melbourne Collaborative Alliance

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