So i'll go in detail here:

When 2P presses START (or Gamepad Special Right), 2P can now play with 2nd ship that appears on screen right after they joined current game. If you lose as 2P or 1P, the game will not end until remaining player drains all of lives.

And implementing that thing was complete pain in ass but still made it. Though almost everyone is on online MPs, i still fw couch coops.