Is a Life Insurance Clause in a Separation Agreement a “Stand Alone” Clause?

Mark Feigenbaum

An Ontario court recently had to decide whether a clause in a separation agreement requiring the husband to secure life insurance in his former wife’s favour was a “stand alone” clause entitling her to the full amount after his death or whether it was intended to act solely as “security” for spousal support.

What Happened?

The case involved a husband, his former wife and his current wife.

The husband and his former wife were married in 1987 and separated in 2002. Under a separation agreement dated 2004,the husband was to secure a life insurance policy in the amount of $500,000 naming his former wife as irrevocable beneficiary. However, he never obtained such a policy. The husband did pay his former wife $6,250 in monthly spousal support until his death, although he brought a motion to terminate spousal support shortly before his passing.

The husband died in 2017. At the time of his death, he lived with his current wife, with whom he had begun living in 2002 and had married in 2009. The current wife acted as the estate trustee.

After his death, the former wife brought an application seeking $500,000 from the husband’s estate. The former wife submitted that the contractual clause requiring the husband to secure insurance was a “stand alone” clause, fully enforceable as against the estate such that she was entitled to the entire amount claimed. During the course of the litigation, an order was made that placed $500,000 into court from the proceeds of the estate pending the determination of the former wife’s claim.

The current wife opposed the application claiming that the life insurance policy was simply intended to “secure” spousal support. As such, any of the monies paid into court were subject to a “clawback” under the Succession Law Reform Act.

Decision 

At the outset, the court stated that the matter was one of contractual interpretation and deciding whether the clause requiring the husband to secure insurance was a “stand alone” clause.

After reviewing relevant case law, the court found that the test to be met was whether the sole purpose of the insurance clause was to act as “security” for support obligations. It stated that, absent such singularity of purpose, the court had to find that the clause was intended to act as a “stand alone” clause. The court said:

“The logic supporting such an interpretation is clear. One can easily envisage scenarios whereby an insurance clause is intended to not only “secure” support, but to also provide other forms of compensation to a recipient spouse. For example, spouses have been known to leave property to their former partners in their wills as a show of either affection, appreciation, guilt or regret. The same logic can apply to insurance clauses in separation agreements. Perhaps the life insurance is intended to simply “secure” future spousal support obligations. Or perhaps the life insurance is intended to “secure” those obligations as well as show some form of appreciation to a former spouse for the reasons described above. Surely, this analysis must be undertaken on a case-by-case basis.”

Ultimately, the court found that the following points indicated that the insurance policy was intended as a “stand alone” clause:  

1)  The separation agreement contained a lack of express language indicating that the sole purpose of securing insurance was to “secure” support;

2) The release section of the contract suggested that the separation agreement was intended to be a full and final settlement of all issues; and 

3) There was no “draw down” clause whereby the husband could lower the amount of insurance he was forced to secure as his total lifetime support obligations presumably lessened.

As a result, the court found that the insurance obligation in the separation agreement was not intended to act solely as “security” for spousal support. Instead, the clause was a “stand alone” clause and the former wife was entitled to receive the $500,000. 

Get Advice

At Feigenbaum Law, our goal is to help you move forward following the breakdown of a relationship while retaining as much financial stability as possible and ensuring your children are provided for. Mark Feigenbaum is able to counsel his clients on all potential risks that may result from a family law dispute, not just those related strictly to the breakdown of a marriage. Contact Mark online or call him at (416) 777-8433 or toll-free at (877) 275-4792 to book a consultation.