Generally speaking, in a New Jersey divorce, the parent who has to pay child support is required to carry life insurance. The rationale for requiring the person paying child support to maintain life insurance is that the child support obligation is a multi-year obligation. If the person paying child support dies without life insurance there will be no stream of income to cover the expense of raising the child to adulthood. If there is a life insurance policy in effect there will be a pot of money if the parent dies to support the child throughout their developmental years. The amount of life insurance that the paying parent has to obtain is usually based on the projected cost of child support over the years that it will be paid. The amount of insurance will also include an estimate of the parent’s projected contribution to the child’s college costs.
For example, let’s say a father is ordered to pay $150/week for child support for his 5 year old daughter. His annual child support obligation is $780o per year ($150/week for 52 weeks). He will be paying child support for a minimum of 13 years. Therefore, his basic child support obligation is $101,400 ($7800year x 13 years). Assuming that his daughter attends college he will also have a 4-year college expense obligation. Assuming further that her net college tuition and expenses are $25,00o per year and he is obligated to contribute 50% of the outstanding amount, his expected college contribution will be $12,500/year x 4 years = $50,000. He will need to have a life insurance policy for a minimum of $150,000 to cover his projected child support and college expense contribution. The obligation to carry life insurance for his child will cease at the point of his daughter’s emancipation.
A common question is whether the non-custodial parent can use the life insurance that they have through work to cover their child support obligation. The answer is yes, the insurance can generally be obtained from any source, as long as it covers the support obligation. A less frequent question is what happens in the event that the non-custodial parent cannot obtain life insurance at a reasonable price, either because of a previous or existing medical condition, or because of their health (e.g., they are smokers). This latter situation defies easy answers and will be dependent on the specific facts of the case. It should be noted that the life insurance acquired does not have to be a whole life policy. Term life insurance is widely available, and can provide hundreds of thousands of dollars of coverage at affordable rates.
The life insurance policy beneficiary designation will usually appoint the parent of primary residence as trustee on the policy for the benefit of the minor child. The parent who is required to obtain the life insurance will also have to provide proof to the parent of primary residence that the policy is in effect each year for the required amount. A provision should be included in the marital settlement agreement (MSA) that if the life insurance is not in effect as agreed upon in the MSA that a lien will attach to the non-custodial parent’s estate in an amount equivalent to the life insurance death benefit that should have been in place at the time of death. In recent years the practice has been for both parents to have sufficient life insurance to cover the child support/college contribution obligation. The rationale for the custodial parent to also carry life insurance coverage is that if she or he were to die the non-custodial parent would become the parent with the primary responsibility for providing for the child.
I have been helping my clients address child support related issues for over 20 years. My law practice covers all aspects of family law, including: divorce, child support, child custody, spousal support, and other related issues. My man practice areas are Bergen, Hudson, Essex, Passaic and Union counties in Northern New Jersey. If you have questions relating to any of the above mentioned areas don’t hesitate to contact me via phone at 844-431-3380, or via e-mail using the e-mail contact form.