Many divorce agreements require the maintenance of a life insurance policy to secure a party’s alimony and/or child support obligation. Typically, the parties will agree to take out a specific amount of life insurance on their lives, naming their former spouse or children as the beneficiaries. As noted in a previous post, they must also periodically provide proof that they are paying the premiums. Life insurance offers important protection but is not foolproof since the proceeds may be lost for various reasons.
A recent example of such limitations is a decision by the New Jersey Supreme Court in Woytas v. Greenwood Tree Experts, Inc. involving life insurance obligations in a divorce agreement. In this case, the former husband had to pay alimony and child support as well as contribute to college and numerous other expenses on behalf of the children. He was required to maintain one life insurance policy in the amount of $400,000 to secure alimony, naming his former wife as beneficiary, and another $750,000 life insurance policy naming his children equal beneficiaries to secure his financial obligations to them.
Subsequently, the former husband committed suicide which prevented the former wife or children from collecting any monies under the two life insurance policies. Without another avenue, the former wife turned to the estate to collect the outstanding spousal and child support obligations. Unfortunately, the estate did not hold enough assets to pay support owed to the wife, the children or other parties. The Court held that the outstanding child support obligations took priority over the other claims. Although the Court could assist in finding creative ways to help recover unpaid support, there are also limitations to the Court’s and attorney’s ability to effectuate payment when there are not sufficient funds. As a result, the family could not recover under the policy or the estate.
The takeaway for parties is to consult an experienced attorney about how to protect your support payments via life insurance and other tactics. Contact us for a consultation to learn how we can help you get the best result in your case.