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Life Insurance and New Jersey Divorce: What You Should Know

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Couples who are married commonly purchase life insurance that will cover existing or anticipated debts in the event one of them suddenly dies. If the two of them choose to separate, the obligation to continue payment on these policies may still continue. It’s important to raise the question of what to do about the life insurance policies during the divorce so you can take action with the guidance of your Middlesex divorce attorney.

Is Life Insurance Considered a Marital Asset?

This is a frequently-asked question in New Jersey divorce cases, and without knowing all the facts of the case, the best answer is: It depends. It’s important to determine, though, because marital assets are subject to equitable division. That doesn’t necessarily mean that you’ll be splitting the policy 50-50. What it does mean is that it can be factored as an asset to be weighed against other assets, debts and considerations when dividing what you once shared.

The determination may come down to the type of policy it is. If you have a “Whole Life” policy, it has cash value and would be considered part of your net worth. That means it has to be listed as a marital asset and possibly cashed out and divided. If you have a “Term Life” insurance policy, there isn’t any present cash value and therefore isn’t a marital asset. However, it could still be figured into the divorce. For instance, the Court could require the policy holder to maintain the policy for the benefit of the other spouse or any shared children. There are also “Universal Life” insurance policies, which are sort of a mashup of whole life and term life insurance policies, typically with a flexible premium option. It will be up to the Court to decide whether to factor these policies.

Will I Need to Change My Life Insurance Policy Beneficiary Post-NJ Divorce?

Unless you have received specific orders from the family law Court instructing you otherwise, you probably don’t need to change the beneficiary on your policy. (It’s more likely you’d be ordered to maintain it.) However, if the Court hasn’t made any such ruling, you may want to.

Most people who are married with a life insurance policy list their spouse as the beneficiary. This is especially important when the spouse is dependent on the insured. The whole purpose of the policy is to make sure those who are financially dependent on the insured are taken care of in the event of their untimely death.

However, if you are divorced and your life insurance policy isn’t part of the final divorce decree, you’ll be free to update the policy, change the beneficiary or even cancel it, if you choose.

Will the Court Order Me to Maintain Life Insurance?

It is certainly possible, particularly if it protects the income stream of the custodial parent and children.

One thing to watch for, if you’re the custodial parent, is that the insured stops paying the premiums and the policy is canceled without your knowledge. If the Court orders that the life insurance policy be paid as part of the dissolution, you can protect yourself by:

  • Providing the insurer with the divorce decree and instructions to notify the former spouse if there’s any change in policy.
  • Taking over the policy and making the payments themselves.
  • Require that the life insurance policy be added to the child support or alimony as part of the divorce agreement so that the beneficiary can pay the premiums directly.

Discuss these possibilities with your Middlesex County divorce attorney because life insurance can protect not only the beneficiary but their children.

Contact our Middlesex County Divorce Attorneys today at (732) 810-0034 to schedule an appointment.

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