Life insurance is an interesting product for consumers. It's designed not to benefit the consumer himself/herself, but his/her beneficiaries after he/she passes away. It's even more interesting when a divorce is involved. When a spouse is listed on a life insurance policy during marriage, a divorce can trigger a desire to change one's policy to remove the now ex-spouse. Many parties choose to put a clause in their marriage settlement agreements to address these situations. But, where they are silent, a court may have to decide the proper course of action.
In the recent New Jersey Appeals Court case of Wheeler v. Wheeler, Anna and Billings Wheeler, formerly married, were dealing with the repercussions of their divorce and subsequent changed circumstances after it. The two divorced in 2007 after their 27 year marriage. In the divorce settlement, the two sides agreed that:
- Billings was to pay to Anna permanent alimony of $50,000 a year or $4,166 per month. The alimony requirement would terminate if and when Anna remarried or if either party died; and
- Billings had to maintain life insurance coverage in the amount of $250,000, with Anna as a beneficiary and he had to provide proof of this coverage annually.
Billings got a life insurance policy in August 2007 that named Anna as the sole beneficiary. After Anna remarried in March 2014, she notified Billings and he stopped his alimony payments shortly afterwards and contacted his insurance company to end the policy. Anna contacted the insurer and learned that Billings had replaced her with his new girlfriend on the policy. He claimed that the life insurance requirement terminated when the alimony obligation ended. The question before the court was whether this was a reasonable interpretation of the divorce papers.
The lower court looked at the purpose of having life insurance policy requirements in property settlement agreements after a divorce. They are very commonplace. Their purpose is to ensure that there is a sufficient fund for the one party if the payor dies before her. In this case, the two sides agreed to protect Anna from the possibly that Billings would predecease her. Anna did not indicate in her lawsuit for divorce that she was dependent on Billings for support and did not claim that Billings intended to continue support after she was remarried.
The lower court found that Billings had fulfilled his alimony obligation when Anna remarried and that the need to protect Anna's need for alimony no longer applied. The judge looked to the case of Konczyk v. Konczyk, which held that "[g]enerally, an obligation to maintain insurance and the entitlement of the insured's former spouse . . . to the proceeds will not survive the satisfaction of the obligation the insurance was intended to secure." The court determined that Billings's obligation ended and the Appeals Court agreed.
While the court found that divorce agreement in this case did not tie the life insurance obligation to Anna's remarriage, it looked to the purpose of the obligation to determine that it was no longer necessary.