The role of life insurance in a divorce settlement
What would you do if you were depending on a former spouse’s support for you and your child and your ex-spouse died? If you were the obligor, how could you ensure that your child still gets financial support? Fortunately, there is a solution that can ensure that children are still protected financially and that an ex-spouse can still receive the funds that they need.
Why Life Insurance Is Necessary
After a divorce, a parent, usually the noncustodial one, will likely be required by the court to pay child support to the other parent. One party may also be required to pay alimony to the other for a certain amount of time.
These payments may be critical to the support of the recipient as well as for ensuring that the child’s standard of living remains at a similar level. A life insurance policy is a way to ensure that these obligations are met.
A New Jersey family law attorney may be able to help you determine whether purchasing life insurance should be a requirement in your divorce settlement.
Determining the Amount of Coverage Needed
Figuring out how much coverage is needed is not as simple as just looking at how much the child support amount is and calculating the total amount until the child is no longer a minor. There may be other expenses that the paying parent contributes to that are not included under the child support payment. Furthermore, some parents may also want to make sure that the cost of the child’s college education is covered.
Here are some of the factors that may be considered when calculating the amount of life insurance coverage for child support:
- How much child support will be paid until the child is no longer a minor
- Potential college costs
- Medical expenses
- Costs of extracurricular activities
- Any other expenses the parent may be paying
Calculating spousal support is generally more straightforward and can be done by determining the total amount that would be paid over time.
Mistakes to Avoid
When the purpose of the life insurance policy is to cover child support, it is important that the parent does not name the child as the beneficiary of the life insurance policy. Minors cannot inherit assets.
Unfortunately, the parent purchasing the policy may resist naming the other parent as trustee for the child. It may be possible to compromise if another family member is listed instead. If you are in this situation you may want to work with a New Jersey family law attorney in your communications with the insurance company to ensure that the beneficiary form is completed correctly.
For both child and spousal support, it may be necessary to have an agreement that the amount of coverage decreases over the years as the time until either type of support ends draws closer.
An accident or sudden illness can happen to anyone, so even if the person paying support is healthy, it is important to have life insurance as backup.
It can be even more important if the person already has health problems, but this can make the life insurance solution less viable because the cost of it may be so high. If this is your situation, you may want to consider other options, such as setting aside assets that can be inherited, buying an annuity or a similar plan.
Get the Legal Help You Need
If you are considering a divorce or you are already going through one and feel you may need some legal guidance, contact Morgenstern & Rochester in Cherry Hill at 856-489-6200. We will be pleased to discuss your situation with you.