Document Your Wishes: Divorce & Changing Life Insurance Beneficiaries

A surprising outcome that is noteworthy for Divorcing (or Divorced) Couples seeking to use Life Insurance Proceeds to assist their exes and or children:

Re: American Family Life Assurance Company of Columbus v. Diana Parker, et.al Question: Was the deceased ex-husband’s mother entitled to the proceeds of his life insurance policy at the time of his death even though the ex-wife was the named beneficiary and his mother, only the contingent beneficiary?

Decision: Yes, as ruled by the Plymouth Superior Court.

Diana Parker claimed that her former husband, Sean Parker, intended that she and their children be the recipients of the $100,000 policy on his life, but, and the but is important, she had no admissible evidence to substantiate her claim. Interestingly the court looked to the parties’ 2016 Separation Agreement for evidence of the husband’s intent. Here the judge concluded that “the Separation Agreement is better evidence of a lack of intent to support Diana’s position, than Sean’s failure to change beneficiary designation subsequent to divorce.” In other words, the Separation Agreement did not support Diana’s case because it was silent on any agreement to maintain her as beneficiary of his life insurance held at the time of marriage. The very fact of the Agreement’s omission of terms regarding life insurance beneficiary designations resulted in a ruling favorable to Sean’s mother.

Lesson: For divorcing couples, there is an important lesson to be learned from this ruling. Even if Sean had truly wanted his wife and children to benefit, upon his death, from his life insurance and as such, intentionally left Diana as beneficiary of the policy, that, in and of itself, did not provide sufficient compelling support for Diana’s case. Indeed, the message to take from this ruling has greater implications than those relating to life insurance.

Divorcing couples need to recognize that beneficiary designations appear in many places, including, to name a few, bank accounts, deeds, and, of course, on retirement plans. Qualified retirement plans quite commonly actually require a sign off by the party who is being removed as beneficiary. As such, Separation Agreements need to state that the parties will cooperate in signing off on beneficiary designations and agree that parties may change beneficiaries, unless, of course, they do want to retain each other as beneficiaries. Yet, as Diana Parker learned, being left as beneficiary, without a specified written agreement (or specifying in the Separation Agreement), may prove insufficient to uphold the beneficiary’s claim to “the proceeds.”

Since Separation Agreements often contain monetary obligations to pay child support and/or alimony and/or property settlements, provisions for collateral assistance and/or cash payments in the event of death need to be addressed. Life insurance maybe the most common, and often the most affordable, means to guarantee your support obligations and fulfill cash settlement terms. But they are not the only way. Alternatively, couples may identify assets that will be inherited by their former spouse in the event of death or they may elect to require in their Agreement that each party will include specified testamentary provisions for each other and/or the children in each one’s Will and estate plan effective as of the date of divorce. Not uncommonly some couples want to ensure that their children, not someone else or someone else’s children, will inherit the assets acquired during the marriage.

A word to the wise: Include this provision in your Separation Agreement. Wills can be changed at will; beneficiary designations may be challenged. The Separation Agreement stands.

The point is clear and simple—you need to discuss, and you need to reach agreement on what will happen in the event of your death. If you want your former spouse and/ or your children to receive benefits upon your death, you need to say so, and, put it in writing in your Separation Agreement. Mediation provides an ideal forum for discussing not only the amount of collateral needed to uphold your agreements, but also the vehicle(s) for upholding your pledge. In addition, you should consider the time frame needed to meet your obligations and any provisions for future reassessment of dollars needed or in the event of a change of circumstances. It is the mediator’s responsibility to raise the relevant questions and help you, as a couple, to analyze the best, most cost effective means to fulfill your family’s support needs at the same time that there is a realistic recognition of your needs as single individuals.

                        author

Dr. Lynne C. Halem

Dr. Lynne C. Halem is the director at the Centre for Mediation & Dispute Resolution in Wellesley, MA. Dr. Halem has worked in the mediation field since 1982. She is on the Family Dispute Service Panel of the American Arbitration Association and a past board member of the Divorce Center,… MORE >

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