The standard language in divorce decrees regarding each party’s obligation to maintain life insurance for the children of the marriage is, in many instances, not sufficient to protect the intended beneficiaries. To avoid such pitfalls, it is recommended that the two parties negotiate the beneficiary designation language to help insure that the divorce decree accurately reflects what is intended, and precludes either party to the agreement from unilaterally changing the intended results. The following examples highlight the perils of ignoring this recommendation.
Example 1: The Lincoln National Life Insurance Company v. Ruybal, 2014
-In 2002, Rudolpho Ruybal and his wife, Valerie Gomez, divorced. In their divorce decree, they agreed to relinquish any rights to each other’s life insurance policy. Additionally, they agreed to retain their current policies, naming their children as beneficiaries.
– Rudolpho had group term life insurance coverage through his employer. The employer changed the carrier issuing the coverage three times, once in 2004, once in 2007, and once in 2009.
– In 2007, Rudolpho submitted a changed beneficiary designation form, designating his sister, Jacqueline, as beneficiary.
– Upon his death, Jacqueline and Rudolpho’s children made competing claims on the policy’s insurance proceeds, and litigation ensued.
– The Colorado district court focused on the specific divorce decree language requiring the spouses to keep their existing insurance policies payable to the children. Technically, Rudolpho had not taken any steps to change policies, thus abiding by the terms of the decree. Rather, his company changed carriers. The court deemed that the policy under the new carrier was different than the existing policy at the time of Rudolpho’s divorce. Therefore, the new beneficiary designation was deemed valid, and Jacqueline was awarded the proceeds.
Example 2: Hearing v. Minnesota Life Insurance Company, 2014
– Jon Holloway was divorced in 1998. The divorce decree required that he maintain $100,000 of life insurance for his daughter, Nikole. Nikole was nine at the time.
– Despite the decree, Jon purchased a $100,00 life insurance policy in 1998, designating his sister, Joetta Hearing, as beneficiary. Jon may have intended to keep his ex-wife from exercising any control over the insurance money if he died while Nikole was a minor.
– Approximately nine months before he died, Jon sent Nikole a note stating that he wanted her to get most of the insurance money. However, he never revised his beneficiary designation form.
– Upon his death, both Nikole and Joetta filed claims for the insurance money, and litigation ensued.
– Applying state law, the Iowa district court stated that a beneficiary designation is valid unless
. the deceased expressed a clear intention to change his beneficary designation and
. he did all he could to notify the insurance company of his intention to change beneficiaries.
– Since he had not revised his beneficiary designation form, Jon had not met the second requirement. Consequently, the court ruled in favor of his sister, Joetta, despite Jon’s note to his daughter.
Conclusion:
The above two cases indicate the power of the beneficiary designation. The courts ruled in both cases that the named beneficiaries were entitled to the death proceeds, despite the competing claims arising from the obligations originally created during divorce proceedings. As noted in our introduction, careful structuring of the language in a divorce decree is critical for protecting your interests and those of your children.
Attorney Elga A. Goodman specializes in estate planning and elder law. She can be reached at 973-841-5111.
Posted in: 401ks, Beneficiary Designations, Estate Administration, IRAs, Life Insurance, POD accounts