Divorce and Life Insurance

When a husband and wife are married, they may purchase life insurance, naming each other as beneficiaries. Or they may name their children as beneficiaries. But what happens upon divorce? There are several possibilities.

Let’s assume that the insured party is the husband. During the marriage he has named his wife as the beneficiary on a life insurance policy. After 20 years of marriage, he and wife have decided to dissolve their marriage. Consider several possible scenarios that often occur:

Scenario #1. The parties get divorced and never discuss the husband’s life insurance policy. The husband and wife enter into a settlement that addresses their financial and property issues, but the husband’s life insurance is simply overlooked in the divorce discussions. Under state law, the designation of the wife as his beneficiary will automatically lapse when the divorce becomes final. In other words, the wife will no longer be a beneficiary following the divorce.  Assume the life insurance policy is fully paid at the time the husband dies several years later.

Scenario #2.  The wife and husband get divorced, but as part of the proceedings, they specifically address the life insurance policy. They agree that the wife will waive her claim for alimony in exchange for the Husband agreeing to maintain the wife as the sole beneficiary on his life insurance policy. They put this agreement in their settlement agreement, and after the divorce is final, the husband re-designates the wife as the beneficiary on the insurance company’s documents.

Scenario #3.  The same fact situation as Scenario #1. However, prior to his death, the husband remarries, and he designates his second wife as the beneficiary on his life insurance policy. He completes the proper designation form with the insurance company so that the company knows that his second wife will have a right to claim the death benefit if she outlives the husband.

In the third scenario, no problem arises because the second wife is the named beneficiary at the time of the husband’s death. In the second scenario, no problem arises because the first wife remains the beneficiary on the policy, despite the divorce, because the parties entered into an agreement for the wife to retain her beneficiary status, and she was properly re-designated as a beneficiary with the insurance company.

In Scenario #1, however, a common problem has arisen: Because state law automatically removed all beneficiaries at the time of the divorce, and the husband took no steps to designate a new beneficiary before he died, his life insurance company is left with a fully paid policy and nobody to pay. In fact, if, hypothetically, the husband had been re-married in Scenario #1, but had failed to designate his new wife as the beneficiary under his existing life insurance policy, there would very likely be a contest between his ex-wife and his new wife. The ex-wife could argue that she was the only person ever named as a beneficiary, even though state law has now technically removed her name. The new wife could assert that, although she has not been designated as a beneficiary, she is the husband’s wife, and perhaps the executrix of his will, and the primary beneficiary of his estate. Who’s correct? Who gets the money?

There are many approaches to tackling this issue. Attorney Mark S. Guralnick knows them all: He has 30 years’ experience as a matrimonial attorney; he is board certified in family law, and has written six books in the field. He is likewise experienced in the insurance field, with extensive trial civil trial experience, and has settled cases totaling many millions of dollars. Call the Law Offices of Mark S. Guralnick at 1-866-337-2900 for a free, thorough assessment of your case.

What To Do If You’re Considering a Divorce

If you’re considering a divorce, or going through one, you should review the beneficiary designations on existing life insurance policies and make any necessary changes. Life insurance is an important strategic negotiating tool in divorce cases for protecting the dependent spouse’s right to alimony, child support and other benefits. Thus, for example, if a father has been ordered to pay $1,500 per month in alimony, he may also be ordered – or he may agree — to designate the soon-to-be-ex-wife as a beneficiary of his life insurance (up to a certain amount of coverage sufficient to insure the amount of alimony payments she expects to receive over the course of the alimony award).

If you’re the owner of the policy, and you’re committing to provide life insurance to your ex-spouse in order to guarantee alimony or child support or for any other reason, then you should take the necessary steps to designate somebody new on your policy after the divorce is final. Take the necessary steps with your life insurance company to complete the beneficiary designation forms in order to identify your new beneficiary. There are no shortcuts for this step.

Remember that life insurance is a contract between a policy owner and an insurance company.  The insurance company promises to pay the death benefit only to the designated beneficiary upon the death of the insured person. Naming a beneficiary in one’s Last Will and Testament does not change the beneficiary of any existing life insurance policies. If the policy owner cannot decide who to name as beneficiary of the policy, he can designate that the proceeds of the policy flow to the insured’s estate, in which case the proceeds will be distributed according to the insured’s will or by intestate succession if the insured dies without a will (although this is not a preferred designation, and it may slow down the processing of a claim).

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