The Forgotten Insurance: Life Insurance to Secure Alimony & Child Support

When we all think of insurance, we often think of medical insurance, car insurance and homeowner’s insurance as these seem to be the necessary and everyday types of insurance. Life insurance, which for some can be synonymous with high premiums, is one of the first costs to go when seeking to reduce your budget. I often find that the issue of life insurance is something that typically does not cross a person’s mind when they are getting divorced, whether they are the supporting spouse or the supported spouse, especially if the parties did not maintain life insurance during the marriage.

Often times however, when a supporting party has an ongoing alimony and/or child support obligation, a court may order (or the parties will agree) that a life insurance policy will continue (or be implemented) as a method of financially protecting a dependent party and/or child in the event of the supporting party’s premature death.

In other words, the same reasons an intact family would procure life insurance, remain after the divorce. All too often however, an obligation to maintain life insurance is the forgotten provision of a divorce settlement agreement in that either 1) it is noticeably absent from the agreement, or 2) it is not being maintained. Obviously, either of these scenarios is troublesome for the supported spouse and could ultimately cause substantial financial ruin should a situation that life insurance seeks to protect against come to fruition.

In the recent case of Ashmont v. Ashmont, Judge Lawrence Jones recently released an unpublished (non-precedential) yet persuasive opinion on how to deal with the issue of life insurance between divorced parties. In Ashmont, the parties’ Marital Settlement Agreement required that the wife would receive permanent alimony and child support for the parties’ children. In order to secure same, the parties agreed that the husband would carry life insurance as a means to protect against the loss of financial support in the event of an untimely death.

Several years after the parties were divorced, wife brought an enforcement action against the husband for a breach of their agreement for his failure to provide proof that he was maintaining life insurance as well as for sanctions for his past and alleged ongoing violations of his life insurance obligations. At the time of the hearing, husband admitted that he had been in violation of this obligation, but had recently brought himself into compliance by securing a new policy, consistent with the terms of the parties’ agreement.

Although wife acknowledged that husband was now compliant, she still sought sanctions against the husband for his prior failure to maintain the policy and for allowing his dependents to go uninsured for such a long period of time. It was clear that husband only complied with the obligation after wife was forced to bring litigation and wife feared that husband would simply fail to pay the next scheduled premium.

In his opinion, Judge Jones lays out four tips regarding life insurance and divorce:

• The court may direct that the supported spouse or other parent be named as the owner of the policy, if permitted by the insurance company. This option is particularly relevant when the supporting spouse has a history of failing to adhere to his or her court-ordered life insurance obligations. Being the “owner” of the policy, rather than the “beneficiary” or the “insured”, allows for the party to receive any and all notices and communications from the insurance company regarding the status of the policy, including invoices, notices of proposed cancellation, change in policy terms and renewal dates;

• When a party willfully breaches a court-ordered obligation to carry life insurance, the court may issue multiple forms of relief, including but not limited to ongoing financial sanctions, until such time as the defaulting party complies with the obligation;

• When a party violates a court order, but ultimately complies prior to the conclusion of enforcement litigation, such compliance does not completely erase or negate the violation. Nonetheless, remedial and corrective conduct is equitably relevant on the issue of mitigating sanctions and penalties which might otherwise be imposed under the circumstances. In this case, the wife had asked for a sanction of $7,440.00, the amount of money that husband had saved over the years by failing to comply with his obligation. Finding it a mitigating factor that husband ultimately did cure the defect and that wife was not financially harmed, husband was sanctioned $2,500.00 and was ordered to reimburse wife her $50.00 filing fee for the enforcement motion; and

• As life insurance is an ongoing financial obligation intrinsically related to spousal and/or child support, an insurance provision in a judgment of divorce or settlement agreement is potentially subject to post-judgment modification upon a showing of a substantial change of circumstances, pursuant to Lepis v. Lepis 83 N.J. 139, 145-46 (1980). This situation may occur when a term policy naturally expires and the insurance is either much older or less healthy than at the time of divorce, meaning the cost of the policy could be substantially increased and thus revisited by the Court.

While no one wants to think about the consequences associated with an untimely death, the takeaway from this case is that as the supported spouse/parent, it is imperative that you are “in the know” regarding the insurance policies that could very well dictate your financial security (and your children’s) for the rest of your life. If your ex-spouse has an obligation to secure their support payments with life insurance and you have not seen recently seen a copy of the policy, it might be time to reach out and connect with them to ensure the policy is current.

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L
Lauren K. Beaver is a contributor to the New Jersey Family Law Blog and an attorney in Fox Rothschild LLP’s Family Law Practice Group. Lauren practices out of the firm’s Princeton, New Jersey office representing clients on issues relating to divorce, support, equitable distribution, custody, and parenting time. Lauren also offers mediation services to those looking to procure a more amicable divorce. Lauren can be reached at (609) 844-3027 or lbeaver@foxrothschild.com.

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APPELLATE DIVISION FINDS THAT COHABITATION MATTER CANNOT BE REOPENED BASED SOLELY ON CHANGE IN ALIMONY LAW

While the Appellate Division has yet to address the substantive application and meaning of the cohabitation provisions of the amended alimony law, it has now determined twice when the law may apply.

In October, I wrote about how the Appellate Division in Spangenberg v. Kolakowsi, a reported (precedential) decision, held that the cohabitation portion of the amended law does not apply to post-Judgment Orders finalized prior to the amendment’s September 10, 2014 effective date.  On March 2, 2016, the Appellate Division in the unpublished (not precedential) decision of Chernin v. Chernin, similarly held that the 2014 amendments, “by the specific terms of the statute’s effective date”, are not applicable in a situation where cohabitation was previously established pre-effective date.  The primary point to be taken here is that the change in the law alone is not enough to reopen a previously concluded matter – in this case, a cohabitation matter.

Here are the undisputed facts that you need to know:

• The parties were married in 1958 and divorced in 1992.  The property settlement agreement provided that husband would pay permanent alimony of $100,000 per year until July 1, 1997, at which time the payments would increase to $150,000 annually.
• In 1996, husband moved to retroactively terminate his alimony based on wife’s cohabitation.  Following a five day trial, the court granted husband’s motion in part by finding cohabitation, ordering wife to reimburse husband in a sum certain for past overpayments retroactive to when alimony commenced, and reducing husband’s annual alimony obligation by $12,000 annually.  There was no modification to the alimony duration.
• Husband appealed, arguing that alimony should have been terminated pursuant to leading case law at the time.  Husband’s argument was rejected.
• Following passage of the amended alimony law, husband again moved to be relieved of his alimony obligation based on wife’s cohabitation.  Counsel, during oral argument, confirmed that nothing had changed in the past twenty years following the prior modification other than the amendment’s passage.
• The trial court found that the amendment’s passage constituted a change in circumstance and terminated alimony based on the trial court’s prior finding of cohabitation.
• Wife appealed, arguing that the court erred in failing to give effect to the “anti-retroactivity provision” of the amended statute.

In reversing the trial court in wife’s favor, the Appellate Division quoted that anti-retroactivity provision, which provides:

This act shall take effect immediately and shall not be construed either to modify the duration of alimony ordered or agreed upon or other specifically bargained for contractual provisions that have been incorporated into:

a.  a final judgment of divorce or dissolution;

b.  a final order that has concluded post-Judgment litigation; or

c.  any enforceable written agreement between the parties.

The Appellate Court determined that the parties’ post-Judgment litigation concluded in 1997 when a final Order was entered reducing the amount of alimony and leaving the permanent duration untouched based on the wife’s cohabitation.  In other words, the cohabitation issue was already addressed and the matter concluded.  As a result, husband could not simply reopen the issue based solely on the law’s amendment.  Citing Spangenberg, the Court concluded:

Because the Legislature has commanded that the 2014 amendments not be construed to modify the duration of alimony ordered or agreed upon, or to modify specifically bargained for contractual provisions incorporated into an enforceable written agreement between the parties, a judgment of divorce, or a final order concluding post-Judgment litigation, all of which applied here, the court plainly erred in relying on the amendments to modify the permanent alimony previously ordered in this case.

So there you have it.  A second decision from the Appellate Division – this one expressly following Spangenberg – addressing when the cohabitation provisions (and, more broadly, the amended law as a whole) may apply to a given set of facts and circumstances.  The new law itself is not a change in circumstances meriting a review of a previously closed case.  Similar to that case, where the Appellate Division used the word “shall” (rather than “may”) when describing whether alimony should terminate in a cohabitation situation under the statute, the Appellate Court did not address whether terminating alimony was the only appropriate measure had application of the new law been deemed appropriate.  Stay tuned for future developments.

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 Robert Epstein is a partner in Fox Rothschild LLP’s Family Law Practice Group and practices throughout New Jersey.  He can be reached at (973) 994-7526, or repstein@foxrothschild.com.

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*Photo courtesy of Google free images.

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NJ Federal Court Says Condo Association Lien May Have Priority in Chapter 13 Bankruptcy Plan

Timothy Duggan, Esquire and Chris Florio, Esquire of Stark & Stark, as Amicus Curiae (friend of the Court), were successful in convincing the United States District Court for the District of New Jersey to reverse a bankruptcy court decision, which allowed a bankruptcy condominium owner to avoid paying a condominium lien in full under a bankruptcy plan. The Condominium Association Institute (CAI) authorized Stark & Stark to participate in the appeal since the issue in question was important to all condominium associations in New Jersey and other states.

The issue in dispute was whether a condominium lien, which is recorded and served on the owner and mortgagees, is a fully secured claim under bankruptcy law, or a partially secured claim which may be “stripped off” in a bankruptcy plan. In the case in dispute, Whispering Woods Condominium Association (“Condo Association”) filed a lien for $6,085.85 (later amended to $18,761) for unpaid association fees and assessments. Of this amount, $1,494 (six month priority) was entitled to “priority” over the existing mortgages under New Jersey law. When the owner filed for Chapter 13 bankruptcy protection, the unit was worth $170,000 and encumbered with a first mortgage in the amount of $288,063. Therefore, when the case was filed, the lien priority was:

Six Month Priority for Condominium Lien	$1,494
First Mortgage	$288,063
Balance of Condominium Lien	$17,267

Under bankruptcy law, if a creditor holds a security interest in the debtor’s home that is fully or partially secured, the claim cannot be modified in a Chapter 13 plan; it must be paid in full. For bankruptcy purposes, a claim is “secured” if there is some value in the property to secure the claim. Here, since the home was worth $170,000, there is only value to secure the $1,494 six month priority lien and part of the first mortgage.

The bankruptcy court found that the six month priority claim was entitled to “payment priority” (not lien priority) and had to be paid in full, but the balance of the Condo Association’s claim was unsecured and could be modified (ie. treated as an unsecured claim). The Condo Association disagreed and appealed. In order to advance the rights of all condominium associations, the CAI sought leave of court to file its own brief in an effort to assist the District Court in understanding the impact of the decision on the public.

The District Court disagreed with the Bankruptcy Court and found that the Condo Association held one lien, with limited priority, and the lien could not be modified in the bankruptcy case because the lien, as a whole, was partially secured. As a result, the condominium lien must be paid in full.

This is a great victory for all condominium associations in New Jersey.

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Sports Authority Files for Chapter 11 Bankruptcy in Delaware

This morning, Sports Authority, Inc. (“Sports Authority”) filed for Chapter 11 bankruptcy protection in the United States District of Delaware, Bankruptcy Court, case # 16-10529. The retailer with more than 450 stores is expected to close about 140 locations within the bankruptcy proceeding. Sports Authority was once the biggest sporting-goods chain in the U.S., but over the past few years has had difficulty competing with Dick’s Sporting Goods Inc., Lululemon Athletica Inc., Gap Inc.’s Athleta, and Amazon.com, Inc.

Landlords Beware

If you are a landlord, you will want to know:

• Will they remain a tenant?;
• When will rent be paid?;
• Are there pre-petition claims that are owed?;
• Is the Debtor in default of pre-petition non-monetary obligations?; and,
• What other damages are owed (both pre- and post-petition)?

Trade Creditor Questions

Trade creditors, including suppliers, should also be asking important questions, such as:

• Have you been paid on time and does a reclamation claim (right to take back goods shipped, unpaid within 45 days) exist?;
• Can an administrative claim be asserted?; and,
• Should a proof of claim be filed, and if so, how?

If you are a trade creditor with reclamation claims, then it is vital to assert your rights now.

Stark & Stark’s Bankruptcy & Creditors’ Rights Group can help. Our bankruptcy attorneys regularly represent landlords throughout the country, including recently in the District of New Jersey, Southern District of New York, District of Delaware and Eastern District of Pennsylvania on a variety of issues.

For more information on the Sports Authority filing, and how Stark & Stark can assist you, please contact Stark & Stark’s Bankruptcy & Creditors’ Rights Group.

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DCPP / DYFS Agents Exempt from Lawsuit

Children’s Welfare (DCPP/DYFS) Agents exempt from Law Suit

The Proper Venue for Filing a Will Contest

If a party has decided that it would like to Contest a decedent’s Will, the next question that arises concerns the appropriate venue to file the Will Contest. The general rule, as set forth by Rule 4:80-1(c), is that a Will Contest must be commenced in the State and County where the decedent died a resident. As such, if a person passed away as a resident of Mercer County, then the Will Contest must be commenced in the Mercer County Superior Court. There are, however, exceptions where a non-resident decedent may be subject to a Will Contest within the State of New Jersey.

This Rule provides that even if a decedent is not domiciled in the State of New Jersey, a Will Contest may still be commenced in the County where the decedent left any property or into which property belonging to the decedent may have come since his death. The only caveat to this exception would be if a Will Contest or action to probate a Will in another jurisdiction had already commenced. Under those circumstances, the Will Contest would have to take place in the foreign jurisdiction. If that had not already occurred, however, a party may commence a Will Contest in the State of New Jersey, provided those conditions have been met. As will be discussed in another Blog, whether a decedent is considered a resident of the State of New Jersey or another jurisdiction can often be the subject of litigation.

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Governor Christie Renominates Judge Bauman for the Supreme Court

Yesterday, Governor Christie announced that he was nominating Monmouth County Superior Court Judge David Bauman to fill the Supreme Court seat currently occupied by Judge Cuff.  The announcement was a surprise, since it had been generally understood that the Governor had agreed with State Senate President Sweeney to leave Judge Cuff in place until she […]

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