Dear Quentin,
My husband and I are both on our second marriage. We each have children from previous marriages. His divorce decree from his first wife states that he must maintain a $350,000 life-insurance policy for his children. However, on the actual policy, I am the sole beneficiary. What would happen if he dies and I receive the payout from the life-insurance policy?
Am I legally obligated to turn the money over to his children because of what his divorce decree says? There is no written will at this time indicating anything for his children. I don’t want to be left in legal limbo. Should I talk to my husband about this and have him name his children as beneficiaries on the policy, consistent with his divorce decree?
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Wife & Stepmother
Dear Stepmother,
You wouldn’t be the first second wife to be part of a face-off between a life-insurance policy and a divorce decree.
It’s smart and mature to be forward-thinking and to want to sort this out now, rather than kicking the can down the road and waiting for something to happen to your husband, and only then seeing how it all plays out. That would not only create legal problems for you and his first wife, it would also create unnecessary stress for the entire blended family at an extremely difficult time. I applaud you for wanting to do the right thing and making sure nothing nefarious happens. It’s the decent thing to do. The Supreme Court has also weighed in on such cases.
You may wish to ask your husband to take your name off the policy and make his children the beneficiaries, in accordance with his divorce decree. “If you are ordered to pay spousal support and/or child support in your divorce settlement, the judge may require you to maintain life insurance to protect these payments,” according to Charles R. Ullman & Associates, attorneys at law in Raleigh, N.C. “Once your children reach the age of majority, you may file a motion to have the divorce agreement amended.”
“Some life-insurance policies are established with irrevocable beneficiaries, which cannot be changed by the policyholder alone,” the law firm adds. “Unless an ex-spouse agrees to changes in the policy, as an irrevocable beneficiary, he or she would have the right to a payout upon your death even after a divorce.” If there were no children involved and your husband was not ordered to maintain the life-insurance policy as part of his spousal support, he could in good conscience put your name on the policy as a beneficiary, it adds.
There are caveats
This may all be moot depending on the type of policy he has. A term-life policy lasts anywhere from 10 to 30 years, and if your husband lived longer than that, the policy would expire and the beneficiaries would not receive any money. A whole-life policy, on the other hand, has a cash value (the amount you can take out while you are alive) costs more than a term-life policy. Once a whole-life policy has built up significant monetary value, the insured person can cash it out or borrow against it. And, yes, if the insured person dies, the face value would go to the legal beneficiary.
A caveat: If your husband’s divorce decree was not clear regarding the beneficiary of his life-insurance policy, the outcome may depend on the laws of your state. A divorce decree can sometimes override a life-insurance policy, but the circumstances are quite limited: “If the policyholder was married in a community property state and got divorced, the ex-spouse may be entitled to some of the death benefit regardless of who is the named beneficiary,” according to Boonswang Law in Philadelphia.
It’s not clear whether your husband acted to change the beneficiary on his life-insurance policy knowing it would contravene his earlier divorce decree. Roughly half of U.S. states — including Florida, Pennsylvania, New Jersey, New York, Texas, Massachusetts and Colorado — have some form of revocation-upon-divorce statute that automatically removes an ex-spouse as a life-insurance beneficiary after divorce, the law firm says. California law, on the other hand, excludes life-insurance policies from automatic revocation-upon-divorce laws.
In a similar but not identical case, the Supreme Court decision ruled in favor of the ex-wife. In Hillman vs. Maretta, the Supreme Court ruled in favor of a 66-year-old man’s ex-wife, who was named as the beneficiary of a life-insurance policy worth over $124,000, rather than his widow. The second wife asserted that she could claim the policy under Virginia state law, which revokes a divorced spouse’s beneficiary in favor of the widow or widower. The Supreme Court disagreed, and the ex-wife got the money.
Ask your husband to address this inconsistency and become his own Supreme Court justice.
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