Maintenance payments on separation or divorce

We advise that your client seeks professional tax and legal advice as the information given is a guideline only and
does not take into account your client’s particular circumstances.

When putting cover in place to provide for maintenance payments as a result of a Divorce Decree or Separation Agreement
there are various ways of structuring the life assurance contract to ensure it is in line with the requirements of the legal
agreement.

How you set up the contract will depend on two things;

1. Who needs to have ownership of, and control over, the contract during the lifetime of the life assured,
and
2. Who needs to receive the death benefit on the death of the life assured / who is to be the beneficiary of the sum
assured on the death of the life assured.

Let’s take an example:

Conor has separated from his wife Julie. As part of their Separation Agreement he has been instructed to put cover in place
to provide maintenance payments for their two children, Emma and Sophie, in the event that he dies before they finish full
time education.

There are two options for how to structure this cover

(i) Own life in Trust
(ii) Life of Another Own life in Trust

Conor effects a single life term assurance protection plan using a single life Flexible Trust Form. He is the life assured and
the Settlor / Trustee on the contract during his lifetime. His two children, Emma and Sophie, are the beneficiaries of the
contract under the Trust. Conor pays the premium on the contract.

Ownership / Control
Conor owns and controls the contract during his lifetime. Any alterations must be authorised by Conor and notification of
any unpaid premiums will be issued to Conor.

Who receives the benefit?
On Conor’s death the sum assured is paid to the nominated Trustee, for the benefit of Emma and Sophie as beneficiaries
under the Trust. As Conor paid the premium on the contract the girls will be subject to Inheritance Tax on the sum assured.
Assuming they inherit nothing else from their father they will each be able to avail of the Group 1 tax free threshold of
€335,000 (currently) before they have to pay inheritance tax.

Important note: A contract issued in Trust cannot be assigned to a bank as security for a loan

c Irish Life