Commonly, spouses name their partner as the beneficiary of their life insurance policy, so that in the unfortunate event of their untimely demise, their spouse would have the means to take care of their family. If a couple decides to divorce, the obligation to continue the payment on this policy may continue. Likewise, if life insurance is an asset, this raises the question of how life insurance will be divided in the context of a New Jersey divorce.
HOW IS LIFE INSURANCE DIVIDED IN A NJ DIVORCE?
New Jersey is an equitable distribution state, which means in the event of a divorce, marital property is not automatically divided 50-50. Rather, it is divided in a fair manner, taking each spouse’s contributions to the marriage into account. Whether or not your life insurance policy is subject to equitable distribution may come down to the type of policy it is.
If you have a “Whole Life” insurance, this policy will likely be subject to equitable distribution in a divorce because it accumulates a cash value over time, which makes it considered a marital asset. If you have “Term Life” insurance, this policy only provides coverage for a fixed term and does not have a cash value component. However, Term Life insurance may have viatical value wherein the policy may be sold to a third party based on the insured having a limited life span. It is important to note that in many cases, the Court will require the policyholder to maintain an insurance policy for the benefit of the other spouse or any shared children for so long as there may be an alimony or child support obligation.
DO I NEED TO UPDATE MY BENEFICIARIES?
Pursuant to New Jersey Court Rules, you are prohibited from changing the beneficiary designation on your life insurance policy during the pendency of divorce proceedings. At the time that your divorce decree is entered, it is prudent to update all beneficiary designations for your life insurance policies in accordance with the terms of your Matrimonial Settlement Agreement and/or Final Judgment of Divorce. In the event that there is no requirement in your divorce decree to maintain life insurance for your spouse or children, you will likely be free to modify the policy according to your wishes, which may even include canceling it.
At Paone Zaleski & Murphy, we are prepared to fight to help you receive the best possible outcome during your divorce. Connect with us today to learn how we can assist you in these difficult times.
