Most New Jersey divorce agreements that involve spousal support and/or child support also require a life insurance policy to secure this obligation. The simple reason for this is that it’s a cost-effective and prudent way to protect the recipient spouse in the event the payor dies prior to completion of alimony obligation.

In a recent American Bar Association alimony panel discussion with family law attorneys from across the country, part of the talk focused on whether and how states use life insurance to secure support payments. In some states, it isn’t common practice or required by law. Instead, recipient spouses tend to opt for a lump sum payment/larger share in division of assets over alimony. At least with a lump sum, the attorneys reasoned, payment was guaranteed.

In New Jersey, it is common practice to see marital settlement agreements stipulate a specific amount of life insurance that must be in place (often on both spouses, particularly when there are children). The agreements will dictate that a receiving spouse is entitled to receive annual proof that the life insurance premiums are being paid and the policy is being maintained. If the policies have lapsed, the named beneficiary has grounds to press the issue in court.

However, even this scenario can leave a recipient spouse vulnerable if the other doesn’t keep up on the payment or other terms or abruptly changes the beneficiary – and then suddenly dies. A possible solution is to draw up the agreement so the receiving spouse is the one who owns the life insurance policy on the other spouse. That way, it is ensured that premiums are paid and there is less chance of a sudden surprise. Alimony attorneys can negotiate some type of an offset for the recipient paying the premiums that would otherwise be covered by the other spouse.

In situations where the obligor spouse doesn’t maintain the terms of the life insurance policy and then dies before alimony or child support is fully paid, it may be possible to find resolution by suing the estate of the ex-spouse. Bear in mind: A civil lawsuit can be time consuming, and there may not be much to gain if there are little to no assets in your ex’s estate. Your East Brunswick divorce lawyer can advise you if such a move is worth it in your case.

One such case was Woytas v. Greenwood Tree Experts Inc., before the New Jersey Supreme Court last year.

When the Obligor Fails to Maintain the Life Insurance Policy

In the Woytas case, the couple was married 17 years and had three children together. Per their marital settlement agreement, the husband was ordered to pay both child support ($1,550 per month) and alimony ($5,000 monthly for 12 years). To secure these obligations, the agreement required that he maintain life insurance policies naming both his ex-wife and their three kids as beneficiaries. A clause in the agreement indicated that in the event either party failed to maintain the policy, that party’s estate would be liable for the outstanding obligations. He was also ordered to pay a significant portion of their health insurance costs, extracurricular activity expenses and college/trade school tuition.

He remarried, and later took out another life insurance policy naming his second wife as the beneficiary.

However, all three life insurance policies contained a suicide exclusion clause. He committed suicide within two years of the divorce. The insurers refused to pay out any of the policies. The former spouse sued her ex-husband’s estate on behalf of herself and three children.

In a decision later affirmed by the New Jersey Supreme Court, the Chancery court ruled that the former husband/father breached the terms of the marital settlement agreement when he failed to maintain life insurance for his ex and their children by committing suicide. Outstanding child support claims were to be paid before all others, and this obligation alone exceeded the value of the estate’s net worth. Thus, the estate was ordered to pay the estate’s balance to cover child support payments.

The administrator of his estate, his second wife, appealed, arguing the kids should only be entitled to outstanding payments over time. She also argued her claims held priority. The appellate court disagreed with both assertions, as did the state supreme court. The amount owed to the kids exceeded the estate’s net assets, and thus everything was to go to them.

This case underscores the need to ensure the marital settlement agreement is carefully drafted to account for a broad range of unforeseeable scenarios. Here, even though plaintiff did not recover the full amount of the alimony, child support or even life insurance benefits owed, she was still able to secure the maximum possible sum for her kids, in substantial part due to the well-drafted settlement agreement.

Call Rozin | Golinder Law today at (732) 810-0034 to speak to our experienced New Jersey alimony lawyers.