Could marriage insurance take the sting out of divorce?

(Getty Images)

In 2001, John Logan had what he describes as “a world class ugly divorce.”

When the dust settled, I was next to broke, I was losing my home and I was really perplexed because I had a really nice income and a really nice home,” he says.

That’s when he wondered why there wasn’t some sort of insurance policy that took the financial sting out of divorce by giving you a payout that would help cover expenses like lawyer fees and prevent you from losing your shirt.

But when he did a quick Google search, he discovered that though the insurance industry had been talking about “divorce insurance” since 1970, they hadn’t actually invented it. So with a background in marketing and new product development, Logan decided to work on bringing it to market himself.

Honey, I bought us divorce insurance…”

John Logan is not an idiot. As a salesman he knows that going home and announcing to your partner that you just bought divorce insurance probably won’t go over well. Besides, his own market research and attendance behind the glass at an endless stream of focus groups told him that most people won’t buy a product called divorce insurance because they don’t think they will ever get divorced – and they might be right.

Though you’ve probably heard the often repeated statistic that half of all marriages in America end in divorce, it’s not exactly true. The U.S. divorce rate is actually falling. Seventy per cent of marriages that began in the 1990s reached their fifteenth wedding anniversary, which was up 65 per cent from the 1970s and 80s. The American divorce rate actually peaked around 1981 at 40 per cent before beginning to steadily fall.

Only 11 per cent of college-educated adults who married in the 2000s divorced by their seventh anniversary and if current trends continue, two-thirds of marriages may never divorce. The same is true in Canada. The latest Statistics Canada data from 2011 show an 8 per cent drop in divorces since 2006 to about 41 per cent overall. In both countries, the decline can be partially attributed to fewer marriages until later life and more cohabitation and common law relationships among younger adults. Though there are still more marriages than common-law relationships overall.

These trends and attitudes lead Logan to prefer to call his product marriage insurance. It functions like term life insurance because it’s similar to Term 25 policy, but instead of living for 25 years, after being married for 25 years you receive a payout depending on how many units of coverage you buy.

Each unit of coverage is $10,000 and costs $15 per month, so if you wanted $200,000, you’d buy 20 units at a cost of $300 a month in premium. Having contributed $90,000 over 25 years, that’s an investment return of 5.7 per cent. You can buy a policy of equivalent units of up to $2 million and up to five policies per person. The policy also provides a death benefit and a critical illness benefit.

It doesn’t matter what the economy does, it doesn’t matter what our investments do, we’re guaranteed to pay you that money regardless and the dollar amount versus the equivalent investment return cannot change — nothing can interfere with that,” says Logan.

After the first four years of marriage, the Marriage Insurance policy will pay a benefit in the event of divorce that is one tenth the value of the marriage benefit in year five, but goes up by $250 per unit for every year you stay married after that. For example, if you had a $100,000 policy, which is ten units, it would grow by $2,500 a year after year five.

Fairly quickly it’s going to pay more than what the average legal fees are and if you’ve been in the program for a long time: 10 years, 15 years, 20 years, it’s a substantial amount of money regardless of the since of policy you buy,” says Logan.

(Flickr/Billie Grace Ward)

Divorce insurance: Is it worth it?

But if you ask Esther Lenkinski, principle lawyer at Lenkinski Law, a boutique law firm specializing in family law and estates litigation, there’s no such thing as average legal fees when it comes to divorce. Leshinski once had a case where the assets were in a format where it was very easy to determine their value, the couple was determined to make things fair for each other and the lawyers followed those wishes. As a result, the legal fees were under $5,000, but there are many ways these fees can balloon.

First of all, some assets are much more difficult to value than others, like stock options, which may require a business valuator. If a person has an interest in a corporation, their income may be difficult to determine because of how they’re able to shelter some of their money within the corporation,” says Lenkinski.

Also, if one spouse has his own factory that manufactures a product, it can be very hard to determine how much the plant and the machinery within it is worth. Once you figure out the value of such a plant, you must determine whether the spouse owned it on the date of marriage, whether it has increased or decreased in value since then and how much of that value is the other spouse entitled to?

A whole host of complex questions may be asked that are not easily ascertainable even with the maximum goodwill and not everyone has the maximum good will in mind,” says Lenkinski. “I always say, the moment that one of the four parties involved in a divorce – the two people getting divorced and their two lawyers — decides to be unreasonable, the divorce will cost more than it should.”

In addition to the fact that marriage insurance may not be able to cover all your divorce expenses, Lenkinski says it could be considered an asset and fair game during the divorce, at least in the province of Ontario.

If I were a creative lawyer, I might take a run at that money and say it’s a contingent asset and should be included in the discussion of assets because the legislation says that property is anything you have a right to receive whether it’s vested or not,” says Leshinsky. Vested means that the rights to property have been secured.

The Family Law Act of Ontario defines property in extremely broad terms by saying that property is “anything 

any interest, present or future, vested or contingent, in real or personal property and includes,

(a) property over which a spouse has, alone or in conjunction with another person, a power of appointment exercisable in favour of himself or herself,

(b) property disposed of by a spouse but over which the spouse has, alone or in conjunction with another person, a power to revoke the disposition or a power to consume or dispose of the property, and

(c) in the case of a spouse’s rights under a pension plan, the imputed value, for family law purposes, of the spouse’s interest in the plan, as determined in accordance with section 10.1, for the period beginning with the date of the marriage and ending on the valuation date.”

“The fact that it might be considered property defeats the purpose of the insurance and if it’s not considered property, the courts may consider it income,” says Lenkinski..

However, Logan counters that argument by saying marriage insurance works like term life insurance or critical illness insurance in that a policy has no incurred cash value value until a claim is filed, so it wouldn’t be part of the original value assessment of assets regardless of who has been paying the premiums because it has no value at that time.

“The way a marriage insurance policy divorce claim is filed Is that you can’t even file for a claim until your divorce is finalized. We can’t even accept a claim until we receive the court stamped document that says your divorce is already done. Here in the states at least, there is legal precedent that those kinds of policies that don’t have incurred value would not be put in an equitable distribution bucket. I would assume that would be the case in Canada, but we’d like to fight that fight for people who have policies,” says Logan.

(Flickr/Alberto Biscalchin)

Will Divorce Insurance Ever Come to Market?

Whether Divorce Insurance is considered income or truly property has yet to be determined because it has yet to be tested in the courts as the product is still not being sold. It did come to the U.S, market briefly as Wedlock Divorce Insurance sold by Logan’s own SafeGuard Guaranty Corporation based in North Carolina and underwritten by Prime Insurance Company based in Utah.

Between 2010 and 2011, the notion of Divorce Insurance generated a lot of interest and media coverage, but then seemingly disappeared. John says this is because the deal with Prime fell through, but there is some dispute between the two parties as to why.

“Unfortunately, we picked probably the worst underwriter we could’ve ever partnered with,” says Logan. “They were very averse to the white hot spotlight that all of this publicity was affording them. A lot of the departments of insurance started phoning them up wanting to know more about the product and what they were doing with it. Out of the blue, Prime sent us a cancellation letter and shut down the program within six months, breaching our contract.”

Logan didn’t actually find out why they pulled out of the product so abruptly, but says during a conference call with Prime’s COO it was revealed that Prime was concerned about market reviews, which is basically an audit.

In an interview from 2013, Prime CEO Rick Lindsey said he was indeed concerned he was going to get in trouble with the regulators, but more than that, the two parties had agreed the WedLock policy would only have the divorce benefit and not the marriage, death or critical illness benefit. Yet, Lindsey alleges that somehow the first policies that were sold morphed into Logan’s original vision because they ended up having these additional benefits and that’s why Prime pulled out. Prime Insurance did not respond to calls for an interview from Yahoo Canada Finance.

“When I read that it made me laugh because as the underwriter of the policy Prime had full control over it. There was no way it could somehow change without their approval,” says Logan.

In any case, now marriage insurance does have the marriage benefit and the additional death and critical illness benefits Logan originally conceived and he says SafeGuard is closer than ever to bringing it to market once again.

“We think we’re very close to getting the funding we need to underwrite this ourselves, but we’re also talking to a couple of insurance companies you’ve heard of who are very interested in partnering with us and these are ones that we like, so we don’t have a situation like the one we had with Prime again,” says Logan.

He estimates marriage insurance is six to nine months away from being released in the U.S. Market and if they partner with who he thinks they will, it will be in Canada in the following year.

“The bottom is while we’ll certainly create a comfortable, living benefit/nest egg for lots of people – one that they don’t have to die or get disabled or ill to receive, and we’ll keep some more folks out of bankruptcy court, if we can keep even one child, whose parent simply made the mistake of choosing the wrong life partner, out of a life of poverty by offering these policies, everything else we’ll ever do pales in comparison,” says Logan.

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