Appellate Division Gives Guidance Regarding Life Insurance To Secure Alimony

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Yesterday, I blogged on the S.W. v. G.M. case in a post entitled More from the Appellate Division on Lifestyle, Foulas and the Concept of Income Equalization.  In that blog, I noted that the S.W. court also addressed the issue of life insurance to secure alimony.

It is not necessary to get into the facts of S.W. further to address this issue here, other than to point out that in an open durational alimony case, the trial  judge relied on N.J.S.A. 2A:34-23(j)(1), which states: “There shall be a rebuttable presumption that alimony shall terminate upon the obligor spouse or partner attaining full retirement age.” Accordingly, given the age of the husband/payor, the judge multiplied the alimony by five years, at which point husband would reach the full social security age.  As the alimony was reversed again, so too was the life insurance obligation.

That said, Judge Mawla went further, reminding us of the purpose of life insurance to secure alimony, as follows:

“A determination of the proper amount of life insurance coverage for a support obligation requires a consideration of many variables. Where a party is insurable and able to pay the necessary premiums, a life insurance death benefit should neither only meet a beneficiary’s bare needs, nor be a windfall. In the former case, unexpected changes in circumstances can leave a beneficiary with unmet needs, whereas the latter condition exposes a payor’s estate to obligations he or she never had during the marriage.

Judge Mawla then gave guidance as to how the amount should be calculated:

“In the alimony context, “once the amount of the obligation is established, the present value (or more correctly, the continuing present value as the obligation decreases) should be determined.” (citation omitted)… The present-day value methodology is appropriate where there is a “known future quantity” of an obligation. Ibid. Where the alimony obligation is not readily  quantifiable because the duration of the obligation is unknown, a
trial judge may utilize an obligor’s life expectancy to determine the duration of the obligation if it is reasonable to do so.  (citation omitted)…

Additionally, a reduction in the amount of security as the obligation is satisfied is an appropriate means of assuring alimony is secured but not subject to a windfall. See Claffey v. Claffey, 360 N.J. Super. 240, 264-65 (App. Div. 2003) (stating “it is perfectly reasonable to provide for the periodic reduction or review of the amount of . . . required security to reflect the diminishing need for it as the parties age, or circumstances otherwise change.”); (citation omitted)… In some cases, where the obligation has the potential to extend beyond an assumed end date because of a change in circumstances, or where a presumption of termination has been rebutted, it may be appropriate to decrease the death benefit in smaller increments or not at all.

In alimony contexts, determining whether to use life expectancy or the presumptive retirement age, and a fixed or declining amount of security will depend on the circumstances of each case and is a matter of judicial discretion.

In S.W., the issue was reversed and remanded because there was no testimony, and only a disputed assertion regarding the husband’s potential retirement at the full  social security age. Moreover, the Appellate Division noted that because the alimony award is of an open duration and may not necessarily terminate when plaintiff reaches the full social security age, the methodology that the Appellate Division set forth, as noted above,  will provide the trial judge with enough flexibility to determine the extent and amount of life insurance needed.

While not much of this states anything new, what is of note is that in open durational alimony cases, calculation of the security should not necessarily end at retirement age, in recognition that alimony could continue thereafter.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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