Securing your interests in support, whether alimony or child support, is an important consideration during divorce negotiations. A supported spouse who counts on alimony must consider what will happen in the event that the paying spouse dies prematurely. The easiest and most used method to secure support is to agree that the paying spouse will maintain life insurance for as long as he/she has a support obligation. An experienced New Jersey family lawyer can help you to determine the appropriate amount of life insurance, taking into consideration tax consequences and other considerations.
By way of example, alimony is taxable to the payee, while life insurance proceeds are not. As such, the total amount of life insurance required may actually be less that the total alimony obligation. Relative to child support, there are various factors that should be taken into consideration prior to agreeing upon an appropriate amount. Child support is not taxable, therefore the total face amount of the policy does not need to be reduced to account for tax consequences. However, there are other factors which may call for an increase in the face amount of the life insurance policy.
Have you taken into consideration the cost of college? If the supporting spouse has an obligation to contribute towards college costs, you may want to factor this into the life insurance amount. This is difficult to do when children are young at the time of divorce and the cost of college, each parent’s required contribution and the likelihood of the child’s attendance at college are all up in the air. As such, it is sometimes difficult to agree upon a set number to cover these expenses. The correct amount of life insurance will vary on a case by case basis.
Additionally, the parties must decide on the beneficiaries of the policy (typically the children, when the policy is in place to secure child support), and who the trustees or custodians of the policy will be.
There are also options for securing support when it is not possible for one of the parties to obtain life insurance because of health issues, age or risky behaviors or when obtaining insurance is cost-prohibitive. The parties can agree to use other assets, such as retirement accounts, to secure obligations. A knowledgeable New Jersey divorce attorney can educate you about various options to ensure that your future support is secure.