The Role of Life Insurance in a Divorce

Those receiving child support or alimony payments rely on that money to pay for their living expenses. Even if the person who pays those support payments (called the payor) always pays on time, a question arises of what will happen to the recipient of those funds in the event of the untimely death of the payor. Life insurance policies are useful in this situation, and are often required, to ensure that the support recipient will continue to receive adequate compensation if the payor dies.

Life Insurance and Alimony

In New Jersey, alimony payments are often secured so that there is a mechanism in place to cover the payments if the payor alimony dies. The rationale is that alimony is awarded because the recipient needs it, and the untimely death of the payor should not unduly affect the financial life of the support recipient.

Amount of Life Insurance Needed to Cover Alimony Payments

The amount of life insurance needed to secure alimony payments can be calculated by multiplying the payment amount by the duration of the alimony payments. Alimony is often ordered to be paid for a limited time rather the indefinitely, either for a set number of years or until a specific event occurs (remarriage of the supported spouse, for example). Since alimony is taxable, you need to deduct the amount of tax to determine the appropriate amount.

The amount of alimony may change over the life of the payments, due to changes in the finances of the payor or the supported spouse. A common change in alimony payments occurs when a spouse retires, which lowers the paying spouse’s alimony payment amount. Carefully calculating the estimated amount of alimony paid over the life of the award will provide the total amount of life insurance needed.

Life Insurance and Child Support

Ensuring that child support payments are made in the event of the death of the supporting parent is crucial, as child support provides necessary funds to the support of minor children. Consider a newly divorced couple with two very young children, a mother who does not work outside the home, and a father who pays child support. Now assume that the father of the children passes away soon after the divorce. Without securing the child support that the father pays, the mother would be left to provide 100% of the care and support for the children. It is quickly apparent how necessary it is to ensure that the support payments continue, as it is in the best interest of the children.

Amount of Life Insurance Needed to Cover Child Support Payments

The amount of life insurance needed to secure child support payments can be calculated by multiplying the payment amount by the duration of the support payments. Child support, unlike alimony, is not taxable, so the calculation for this type of support is a bit less complicated.

Ownership and Beneficiaries of Life Insurance Policy

In order for the life insurance policy to work properly to secure the payment of child support or alimony, the recipient of the support payments should be designated as the beneficiary of the policy. That allows the insurance company to pay out the amount of the policy to the intended person upon the death of the payor. The person receiving child support or alimony should be given authority to receive assurances that the policy is in effect, that the payment of the premiums is current, and that he or she is still the beneficiary.

If you either pay or receive child support or alimony payments, an experienced attorney can help you secure those payments with a life insurance policy. Carefully executed policies can ensure that in the event of the death of the payor, the payments will continue. Call the Law Offices of Peter Van Aulen for a free 30 minute in office consultation to discuss your particular case.

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Peter Van Aulen is certified by the New Jersey Supreme Court as a Matrimonial Attorney.

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