May 2, 2017

By Brad Smith

The court decision of Moore v. Sweet has some harsh lessons for separating spouses and life insurance.

Ms. Moore was married to Mr. Moore. After separation, Mr. Moore and Ms. Moore had an oral agreement he would designate Ms. Moore as the beneficiary of his life insurance policy. Ms. Moore agreed to pay the life insurance premiums. Mr. Moore started to live with Ms. Sweet after separation and contrary to the agreement with Ms. Moore, he designated Ms. Sweet as the beneficiary of his life insurance policy. After his death, Ms. Sweet received the life insurance proceeds. Ms. Moore started court proceedings to get the life insurance proceeds.

The original judge agreed with Ms. Moore but the Ontario Court of Appeal sided with Ms. Sweet, although the Court of Appeal did require a refund of the premiums paid to Ms. Moore.

It is common that one or both spouses have to provide life insurance to the other spouse. For example, if one spouse has to pay child or spousal support, life insurance is a form of security for the support after death of the payor. It is also common that spouses execute a Separation Agreement after separation. Unfortunately the Moores did not have a Separation Agreement.

The Moore v. Sweet decision shows some of the pit falls of life insurance after separation or divorce. First, the spouses did not include the oral agreement in a written Separation Agreement. Second, the premiums have to be paid to maintain the life insurance. Sometimes the beneficiary of the life insurance will assume the obligation to pay the premiums to ensure the life insurance remains in good standing. The third problem is the owner of the life insurance changes the beneficiary. Fourth, the estate of the deceased does not have enough assets to satisfy all claims.

Some of these problems can be reduced or eliminated by proper planning and a Separation Agreement. There are several take-aways from this court decision:

• It is best the spouses sign a Separation Agreement.
• The Separation Agreement should include all terms the spouses have agreed upon – no side deals or oral agreements.
• Make sure the life insurance policy exists and the beneficiary designation has not been changed at the time the Separation Agreement is signed and throughout the life of the insured spouse.