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Life Insurance Proceeds After Divorce

Life Insurance Proceeds After Divorce

When going through the divorce process, the spouses may come to an agreement regarding support for a dependent spouse and/or a dependent child or children. A subsequent issue that has to be addressed is how to ensure the dependent spouse and/or dependent child or children are taken care of in the event of the death of the obligor spouse. Often, the obligor spouse agrees to maintain life insurance naming the dependent or dependents as beneficiaries for as long as the financial support obligation exists. The terms of the agreement can then be put into a formal written Property Settlement Agreement referred to as a PSA. What happens if the beneficiary designation on the policy does not comport with the Agreement? In the recent case of Thomas v. Thomas, the Appellate Court in its unpublished opinion considered the distribution of a life insurance policy where the named beneficiaries on the policy did not mirror the terms of the Property Settlement Agreement (PSA). The Appellate Division looked to the language of the Property Settlement Agreement (PSA) between the decedent and his ex-wife which was incorporated into their Judgment of Divorce when determining how the proceeds of the decedent’s life insurance policy should be paid out. The Property Settlement Agreement contained spousal and child support provisions as well as a provision requiring the Decedent to maintain a life insurance policy naming the ex-wife as an irrevocable beneficiary for $500,000 so long as there is an alimony obligation and for each child of $125,000 until each child was emancipated. Subsequent to the divorce and prior to the decedent’s passing, the decedent’s two children were deemed emancipated therefore eliminating his obligation under the PSA to maintain the life insurance for the them. The obligor spouse passed away leaving a one million dollar life insurance policy. The decedent remarried and subsequently changed the beneficiaries on the policy so that his second wife would receive 60% of the proceeds while his ex-wife would receive 15% and his two children from the first marriage would receive 12.5% each. Problems arose when the ex-wife sought to claim $500,000 she believed she was entitled to pursuant to the terms of the Property Settlement Agreement (PSA) and the second wife sought to claim 60% ($600,000). The ex-wife filed a complaint with the court to ensure her claim. The second wife filed a counterclaim to ensure hers and subsequently filed a motion to reduce decedent’s alimony obligation under the Property Settlement Agreement (PSA) which was later withdrawn. The second wife further claimed that the term of $500,000 was too much considering the amount of alimony decedent owed at death was less than when the Agreement was created and that the terms of the life insurance provision were automatically effective. She asked that alternatively she be awarded 71% of the 50% of the remainder of the proceeds if 50% was awarded to the ex-wife. She claimed that it reflected the decedent’s intent that the children and her would share proportionally in the proceeds. The ex-wife claimed the ex-wife’s motion was without merit and filed a cross motion which sought to enforce the terms of the Property Settlement Agreement (PSA) and requested that a constructive trust be utilized to protect her rights to the insurance proceeds. The two children cross-moved to enforce the decedent’s beneficiary designation leaving them 12.5% of proceeds to each of them which would only leave the second wife with 25% of the 50% rather than the 71% she sought. The Trial Court ruled in favor of the ex-wife and denied the second wife’s motion for reconsideration. The Appellate Court upheld the Trial Court’s decision with regard to the ex-wife receiving her $500,000 as reflected in the Property Settlement Agreement (PSA) but reversed its decision as to the distribution to the second wife and the children. It held the remaining $500,000 had to be awarded in accordance with the decedent’s intent per his beneficiary designation on the policy. For more information on divorce, alimony, child support, property settlement agreements and post judgment matters in New Jersey visit HeatherDarlingLawyer.com.This blog is for informational purposes only and in no way intended to replace the advice of an attorney regarding your specific matter.

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