30 Aug Can an umbrella policy protect me from my ex-spouse?

Q. My ex-spouse, who is quite litigious, will probably go after my non-ERISA pension and other assets for additional child support. Can an umbrella policy protect me in terms of future attorney fees and possible judgments?
— Divorced

A. There are several items to consider here.

First, an umbrella policy through your homeowners or automobile insurance policies will not protect you from possible child support judgments, but it could insulate you from legal fees in the event a lawsuit is brought against you in the future.

An umbrella policy is designed to protect your monetary assets, including that which you have saved for retirement, so that you would not suffer a loss of your income if you were to get sued for an accident, said Jeralyn Lawrence, a family law attorney with Lawrence Law in Watchung.

“In New Jersey, certain retirement vehicles, such as traditional IRAs, Roth IRAs, pensions, 401(k) plans, profit sharing plans and SEP-IRAs are protected from creditors in the event you are sued for such an accident and lose,” she said. “This means that creditors would not be able to satisfy a judgment by seizing such assets protected by an umbrella policy.”

However, there are exceptions, she said.

These retirement vehicles could be exposed to seizure by creditors such as the Internal Revenue Service to satisfy federal income tax debts, she said. Similarly, the federal government could obtain a judgment to attach to these retirement assets for the payment of criminal fines and penalties.

Generally, an umbrella policy does not cover criminal and intentional acts, such as driving while intoxicated, medical malpractice or harassment, for example, she said.

Lawrence said in New Jersey, courts are authorized to garnish pensions under circumstances where the paying parent is delinquent in a child support obligation.

“Notably, a court, in its discretion, may allow the enforcement of a child support obligation against a defaulting parent’s pension benefits even under circumstances where the pension plan itself contains restrictions on garnishment or other involuntary alienations of those benefits,” she said. “As such, if your ex-spouse were to succeed in an application against you and obtained a judgment to satisfy a child support obligation, he or she may attach that judgment to your pension and possibly other assets to satisfy said judgment.”

In the event you are concerned that your ex-spouse will bring an application to garnish your retirement benefits, Lawrence recommends you speak with an experienced family lawyer who can assist you.

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This story was originally published on Aug. 30, 2021.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.