Destroy(clone) not destroying the instantiated prefab

You seem a little confused about scope. Those references do not exist as you've written them and I doubt this compiles at all.

Before you continue with Unity, you should check out a few of the official tutorials. These help familiarize people with C# and Unity in general, which sounds like you might want to consider:
https://unity3d.com/learn/tutorials/topics/scripting/coding-unity-absolute-beginner

For your situation, you need to preserve those references:

 private GameObject player1;
 private GameObject player2;
 
 void Update () {
 
     if (P1notSpawned)
     {
         this.player1 = (GameObject)Instantiate(P1, spawnPoint1.position, spawnPoint1.rotation);
         P1notSpawned = false;
     }
 
     if (P2notSpawned)
     {
         this.player2 = (GameObject)Instantiate(P2, spawnPoint2.position, spawnPoint2.rotation);
         P2notSpawned = false;
     }
 
     if (P1Life <= 0)
     {
         Destroy(this.player1);
 
         P1Life = 5;
         for (int i = 0; i < p1Sticks.Length; i++)
         {
             if (P1Life > i)
             {
                 p1Sticks[i].SetActive(true);
             }
             else
             {
                 p1Sticks[i].SetActive(false);
             }
         }
     }
 
     if (P2Life <= 0)
     {
         Destroy(this.player2);
 
         P2Life = 5;
         for (int i = 0; i < p2Sticks.Length; i++)
         {
             if (P2Life > i)
             {
                 p2Sticks[i].SetActive(true);
             }
             else
             {
                 p2Sticks[i].SetActive(false);
             }
         }
     }
 }