When a couple divorces, the party required to pay alimony and/or child support typically agrees to take out a specific amount of life insurance to secure his or her support obligations. Generally, the insurance policy names the former spouse or children as the beneficiaries. While a spousal support award may be modified in certain circumstances, it does not necessarily follow that the party’s life insurance obligations also will be reduced as evidenced by a recent New Jersey decision.
In Gorczyca v. Gorczyca, the husband agreed to maintain a $1.2 million life insurance policy with his wife as beneficiary for so long as he had an alimony obligation, and a $1.3 million life insurance policy with the children as beneficiaries. The husband fell behind in his support payments and eventually the parties agreed to reduce the amount of support and insurance. However, the husband failed to abide by the terms of the new agreement and again sought to reduce his support and insurance obligations. Among his contentions were that his obligation to carry life insurance should be reduced to $350,000 of coverage, because “given his expected retirement it was sufficient to satisfy his then outstanding alimony and arrears obligations” to his ex-wife.
The trial court denied the husband’s request to reduce his life insurance finding that it “was unable to calculate [the husband’s] potential total alimony obligations to [the wife] because there was no support for [the husband’s] argument that his alimony obligation would cease on his retirement. In addition, the court concluded that [the husband] was unlikely to be able to obtain a new life insurance policy for $350,000 were he to cancel his current policy, given concerns regarding his insurability.” The husband then sought to introduce a letter from his insurance carrier that allegedly indicated he could get insurance. The trial and Appellate Court agreed that the insurance carrier’s letter did not guarantee that a reduction in his life insurance coverage would be granted. Since the husband had agreed to maintain $2 million in life insurance, he was obligated to maintain the life insurance.
The case of Gorczyca v. Gorczyca demonstrates the pitfalls of not sufficiently correlating life insurance to alimony and child support obligations. Before you agree to maintain any level of life insurance, contact us for an experienced attorney in these matters.