Tar paper is deteriorated in stucco wall

I just demoed my hall bath removing the drywall and planned on insulated the wall before I installed new drywall. Upon inspection I saw that the tar paper behind the drywall is in poor shape. The house was built in 1967 and I believe previous owners were over watering onto the stucco. Do I need to replace the tar paper? Since I can’t get it behind the studs what would be the best approach?

I am sure it is OK. If you can see the tar paper, you probably don't have any sheathing. I would guess you are in California or someplace where no sheathing is usually used. If the studs aren't black or show signs of rot, you are fine.

This leads me up to something I want to say, even if it sounds heretical. After years of tearing off old stucco, we find houses that have no tar paper at all, or sometimes a thin pulpy paper, and the sheathing and framing are like brand new 1920's framing. I have a belief that the tarpaper isn't really necessary, as long as the wall has adequate flashing over the windows, good roof drip edges, etc. When we find old stucco is a good 3/4 inch thick, the sheathing and framing are in good shape. It is when the stucco is thin, we find rot and wet framing. It only seems logical that thicker mortar repels water better. When the mortar is way too thin, we are usually there because the stucco is failing. That is why these new houses with one coat stucco aren't going to last because 3/8 inch is just way too thin.