When we all think of insurance, we often think of medical insurance, car
insurance and homeowner’s insurance as these seem to be the necessary and
everyday types of insurance. Life insurance, which for some can be synonymous
with high premiums, is one of the first costs to go when seeking to reduce your
budget. I often find that the issue of life insurance is something that
typically does not cross a person’s mind when they are getting divorced,
whether they are the supporting spouse or the supported spouse, especially if
the parties did not maintain life insurance during the marriage.
Often
times however, when a supporting party has an ongoing alimony and/or child
support obligation, a court may order (or the parties will agree) that a life
insurance policy will continue (or be implemented) as a method of financially
protecting a dependent party and/or child in the event of the supporting
party’s premature death.
In other words, the same reasons an
intact family would procure life insurance, remain after the divorce. All too
often however, an obligation to maintain life insurance is the forgotten
provision of a divorce settlement agreement in that either 1) it is noticeably
absent from the agreement, or 2) it is not being maintained. Obviously, either
of these scenarios is troublesome for the supported spouse and could ultimately
cause substantial financial ruin should a situation that life insurance seeks
to protect against come to fruition.
In the recent case of Ashmont v.
Ashmont, Judge Lawrence Jones recently released an unpublished (non-precedential)
yet persuasive opinion on how to deal with the issue of life insurance between
divorced parties. In Ashmont, the parties’ Marital Settlement Agreement
required that the wife would receive permanent alimony and child support for
the parties’ children. In order to secure same, the parties agreed that the
husband would carry life insurance as a means to protect against the loss of
financial support in the event of an untimely death.
Several years after the parties were
divorced, wife brought an enforcement action against the husband for a breach
of their agreement for his failure to provide proof that he was maintaining
life insurance as well as for sanctions for his past and alleged ongoing
violations of his life insurance obligations. At the time of the hearing,
husband admitted that he had been in violation of this obligation, but had
recently brought himself into compliance by securing a new policy, consistent
with the terms of the parties’ agreement.
Although wife acknowledged that husband
was now compliant, she still sought sanctions against the husband for his prior
failure to maintain the policy and for allowing his dependents to go uninsured
for such a long period of time. It was clear that husband only complied with
the obligation after wife was forced to bring litigation and wife feared that
husband would simply fail to pay the next scheduled premium.
In his opinion, Judge Jones lays out
four tips regarding life insurance and divorce:
• The court may direct that the
supported spouse or other parent be named as the owner of the policy, if
permitted by the insurance company. This option is particularly relevant when
the supporting spouse has a history of failing to adhere to his or her
court-ordered life insurance obligations. Being the “owner” of the policy,
rather than the “beneficiary” or the “insured”, allows for the party to receive
any and all notices and communications from the insurance company regarding the
status of the policy, including invoices, notices of proposed cancellation, change
in policy terms and renewal dates;
• When a party willfully breaches a
court-ordered obligation to carry life insurance, the court may issue multiple
forms of relief, including but not limited to ongoing financial sanctions,
until such time as the defaulting party complies with the obligation;
• When a party violates a court order,
but ultimately complies prior to the conclusion of enforcement litigation, such
compliance does not completely erase or negate the violation. Nonetheless,
remedial and corrective conduct is equitably relevant on the issue of
mitigating sanctions and penalties which might otherwise be imposed under the
circumstances. In this case, the wife had asked for a sanction of $7,440.00,
the amount of money that husband had saved over the years by failing to comply
with his obligation. Finding it a mitigating factor that husband ultimately did
cure the defect and that wife was not financially harmed, husband was
sanctioned $2,500.00 and was ordered to reimburse wife her $50.00 filing fee for
the enforcement motion; and
• As life insurance is an ongoing
financial obligation intrinsically related to spousal and/or child support, an
insurance provision in a judgment of divorce or settlement agreement is
potentially subject to post-judgment modification upon a showing of a
substantial change of circumstances, pursuant to Lepis v. Lepis 83 N.J. 139,
145-46 (1980). This situation may occur when a term policy naturally expires
and the insurance is either much older or less healthy than at the time of
divorce, meaning the cost of the policy could be substantially increased and
thus revisited by the Court.
While no one wants to think about the
consequences associated with an untimely death, the takeaway from this case is
that as the supported spouse/parent, it is imperative that you are “in the
know” regarding the insurance policies that could very well dictate your
financial security (and your children’s) for the rest of your life. If your
ex-spouse has an obligation to secure their support payments with life
insurance and you have not seen recently seen a copy of the policy, it might be
time to reach out and connect with them to ensure the policy is current.
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