Surfing the internet on a recent morning, I noticed an advertisement for divorce insurance. This was news to me, as I had never seen nor heard anyone talk about such a thing. Practicing family law for twenty years, you would think that I would have noticed this before, but I haven’t. Indeed ,the website that I was viewing stated that it was the only company to offer such a policy. The premise behind the insurance policy is that an individual can purchase “units” of insurance which correspond to a payout in the event of a subsequent divorce. This payout can be used towards any divorce expenses including legal fees and distribution of assets, although the web site that I was viewing did not actually contain any restrictions. The website that I was viewing was selling units of $1250. So in other words, if a potential policy holder believed that his or her particular situation would warrant $125,000, then he or she would purchase 100 units of insurance. The policy is paid on the presentment of a final judgment or decree of divorce, and is payable to the insured in a lump sum. To prevent people from purchasing the insurance when a marriage is already in shambles, there is a waiting period of four years. If the insured gets divorced within the waiting period, all premiums ( less taxes) are returned to the policy holder.
So when my head stopped spinning, and after I thought how such a policy could be subject to fraud ( two spouses obtaining a policy and then divorcing just to collect- then possibly remarrying), I wondered how this fits in with New Jersey matrimonial law as we know it. Can this insurance policy be considered an asset of the marriage which would be distributable to both parties? Would it be considered income for support purposes? This raises all sorts of issues!
In New Jersey, all assets that were acquired during the marriage, regardless of whose name the asset is titled in, is an asset of the marriage which is subject to distribution in a divorce. In the event of a policy that was purchased during the marriage by one spouse and that spouse paid the premiums from income earned during the marriage, is the payout an asset? I believe the answer is likely yes. Indeed, I believe that it would be treated the same as the value of a whole life insurance policy, the premiums of which has been paid during the marriage. On the other hand, I am sure an argument can be made that it is only the sum total of the premiums that were paid which constitute the distributable asset.
Alternatively, consider the situation in which one spouse has an account that was his or hers prior to the marriage, and never places that account in joint names, and never commingles marital funds in the account. Then, I believe that the policy and the payout would belong to the purchasing spouse.
In addition, if a third party, say a parent of a spouse purchases the insurance in the name of the spouse, this may be considered a gift from a third party, which is also not distributable in a divorce. I can just imagine the father who never thought the husband was "good enough" for his daughter running out to purchase a policy.
So what about support? The most significant factor considered for both spousal support as well as child support is obviously income, and income from assets is included in that. If a policy holder has a payout of $250,000 ( the limit of the policy I was viewing), and the prevailing interest rate is 4%, do we add $10,000 of income for support calculations?
I have no doubt that these will be the type of questions that we will begin to see if indeed these policies are purchased by New Jersey couples who find themselves in a divorce.