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Can child support take my life insurance money?

Important things to know...
  • Government agencies have wide authority as far as the collection of delinquent child support payments
  • As a rule in most states, death proceeds from life insurance are exempt from the claims of creditors
  • Creditors are able to be paid from the proceeds that are included in a decedent’s probate estate, but life insurance death benefits are paid directly to a named beneficiary
  • There is more cooperation between governmental agencies and life insurance companies to attach life insurance proceeds and pay back child support

If you owe back child support there are several remedies that can be used against you for the purposes of collecting the money.

If an ex-spouse sues you for back child support, the most common method of collection is to garnish your wages.

Under normal circumstances, if you are current on your child support payments and your wages are garnished, they can take up to 25 percent of your wages, but if you are in arrears, they can take from 50 up to 60 percent of your wages for back child support payments

If you move to a different state, then the ex-spouse can file in the new state to have your wages garnished there.

If you are not working, or your wages are not enough for the purposes of collecting child support, then it is possible for your other assets to be vulnerable as well.

Such items as automobiles, motorcycles, personal property, airplanes, boats, homes, individual stocks and bonds, savings, and any other asset that is in the public record.

Methods of Collecting Back Child Support

AdobeStock_74536541-1600x1600There are additional methods where child support can be collected from a delinquent parent who owes back child support:

  • Liens can be filed on personal property such as automobiles, television sets, appliances, boats, motorcycles, stocks and bonds, bank accounts, and any other personal property that a person has available
  • Any tax refunds due, either from state or from federal agencies
  • Worker’s compensation benefits, unemployment benefits, and other government or other benefits
  • Lottery winnings
  • Revocation of licenses such as driver’s licenses, professional licenses, passports, and recreational licenses
  • Threat of jail time

Pension and Social Security Income

Social Security and pension income enjoy somewhat of a barrier to creditors and child support being garnished from it.

In most cases, up to two months of income is exempt from garnishment from these two sources. The only except to this rule is if the person owes back taxes, and then the governmental agencies can take up to 60 percent of the income.

What About Life Insurance Money and Child Support?

AdobeStock_62082716-1600x1600As a rule, and depending on state jurisdictions, life insurance proceeds paid to a named beneficiary are exempt from attachment by creditors.

This would mean that just because an individual received proceeds as a named beneficiary of life insurance, that creditors could not come right in and attach the amount of what is owed to them.

This could also be construed to carry over to child support owed by a beneficiary, but that is not always the case.

Life insurance law in most states allow for the proceeds from the death benefit of a policy to be paid directly to a beneficiary, and thus the proceeds pass outside of a decedent’s probate estate.

The reason for probating an estate is to designate all of the creditors and then settle up with them.

If the life insurance proceeds do not enter the estate, then they are legally absent and cannot be used for debt payment, unless the beneficiary chooses to use the money for that purpose.

What About Life Insurance Cash Values, Excess Interest, and Dividends?

In most states, a governmental agency cannot garnish or confiscate life insurance cash values, excess interest, or dividends to satisfy obligations.

The only possible would be if the money were to be borrowed or taken from the vehicle of life insurance and deposited into a bank or an investment of some kind.

Once the money is removed from a safe- haven vehicle, such as the life insurance policy, then it could be argued that the funds have lost their identity as life insurance cash values, interest, and dividend, and thus they have lost their safe-haven identity.

The Child Support Lein Network

The Child Support Lein Network is a multi-state organization that is designed to work with the different states in the finding of insurance proceeds that can be utilized for the use in child support payments.

The bottom line is that various state agencies can join the CSLN network and inform local state officials when insurance proceeds are being paid.

Heretofore, child support authorities only learned of insurance proceeds coming into being by happenstance, and at these times judgments could be filed against the individual who would be receiving the insurance proceeds.

When states are a member of CSLN, then they can be proactive and file judgments in advance along with the limiting of certain state privileges such as driver’s licensing, hunting licenses, professional licenses, and so forth.

The impact from CSLN is that the life insurance companies themselves will act to deduct back child support amounts owed prior to disbursing the life insurance proceeds to the beneficiaries.

The legal precedent in these cases is that since life insurance is regulated by the states, the states that do this are putting child support needs ahead of payment of the death proceeds to beneficiaries.

Access to Proceeds of Life Insurance

AdobeStock_49092611-1600x1600Even if states and municipalities do have guidelines and services in place, it is not known how many are actively involved and if a person who owes significant delinquent child support will still just have to make do with what is currently appropriate.

While it is not good to shirk child support responsibilities, it is sometimes necessary for a person to be able to regroup and be able to get things back together in order to begin to pay the child support owed.

Most authorities who are in charge of back child support collection will work with individuals as far as setting up a plan that will serve both parties.

In most instances, it is possible to arrange a way to get a plan established that will work if there is good communication between the various parties.

In Conclusion

For the most part, life insurance proceeds that are paid as a death benefit and the inside buildup of cash values, interest, and dividends do enjoy protection from the claims of creditors.

It should be noted that having access to life insurance proceeds of any kind offers an advantage of the use of the money as it is being protected.