Q. I understand New Jersey law automatically revokes an ex-spouse as a beneficiary of life insurance in a divorce.
My friend’s spouse recently died and she has two small kids to care for. Her spouse had a life insurance policy, but it lists his ex-wife and unemancipated children of their marriage as the primary beneficiary. The divorce agreement stated he would have the policy and as each child becomes emancipated they would be removed from the policy. Does my friend have a claim for the life insurance?
— Asking for a friend
A. Probably not.
Ex-spouses are often named as beneficiaries on life insurance policies.
“As part of finalizing most divorces, especially when there are children, one or both parties are required to maintain life insurance benefits/policies either by consent that is incorporated into a binding marital settlement agreement or by order entered by the court at the conclusion of a trial,” said Kenneth White, a certified matrimonial attorney with Shane and White in Edison.
The obligation to maintain the life insurance benefit arises when a divorcing individual has a continuing support obligation — such as alimony or child support — and owing that support will continue after the divorce itself is finalized, White said.
He said the justification for requiring the life insurance stay in force is to assure that the dependent spouse and/or children receive the financial support they would have received had the paying spouse stayed alive.
White offered this example:
Let’s say if at the conclusion of a divorce the payor spouse is required to pay his/her ex-spouse — the payee — alimony at the rate of $10,000 a year for a term of 10 years. The payor would probably simultaneously be required to maintain life insurance benefits in the sum of $100,000 for the benefit of the ex-spouse to assure that the payee received 100% of the alimony payments that would have been received over the next 10 years in the event the payor would have untimely died the day after the divorce was finalized.
“In such circumstances there is often language included allowing the payor to reduce the total amount of life insurance benefits by a sum equal to one year of payments for each year that his/her alimony obligation has been satisfied — at the conclusion of the first year after the divorce was finalized if the alimony obligation had been satisfied in full that year, the payor can reduce the life insurance benefits he/she maintains for his/her ex-spouse by $10,000,” White said.
White said as long as your friend’s spouse had a continuing support obligation due, he probably had a contractual or court-ordered obligation to maintain life insurance benefits for the exclusive benefit of his ex-wife and/or children.
“That would likely impact if not eliminate your friend’s claim to share in the life insurance benefits at issue,” he said. “However, conclusive answers to questions such as these are often in the details, which is why your friend should meet with an experienced attorney to assure that no stone was left unturned.”