Sometimes when people are upset about specific terms of their divorce they will attempt to use estate planning to possibly get around those terms. That is usually not a good idea.
When you think of all the possible things that could be ordered in a decree of divorce, requiring one of the parties to maintain life insurance for a specific beneficiary is probably not one of the first things that come to mind. However, that order is made all the time and it is often the cause of lingering resentment for the ex-spouse who is ordered to pay it.
For example, what if one spouse is ordered to pay the other spouse periodic payments? This order may not be for ongoing support but as the best way to make an equitable division of property. Sometimes the spouse who is ordered to pay might also be ordered to take out a life insurance policy and designate the other spouse as a beneficiary. That way if the paying spouse passes away before all of the payments are made, then the life insurance can be used to make the non-paying spouse whole.
A problem with this is that people often try to get around these orders. How? By designating someone else the beneficiary of the life insurance policies and not making any offsetting changes to their estate plans.
Recently, Market Watch answered what happens in those situations in "Can I leave my stepchildren nothing if my husband dies?"
A reader asked Market Watch a question about her husband's life insurance. It seems that as part of the divorce decree from a previous wife he was ordered to maintain a life insurance policy with his children as beneficiaries until those children reached the age of 23. The policy however listed only the new spouse as a beneficiary.
He had no will and the new spouse wondered if she could keep the insurance money or must she give it to the stepchildren if her husband did pass away.
The answer to the woman's question and other similar questions is simple.
The terms of the divorce can be enforced. The children could ask to have the man held in contempt of court and file a claim against the estate for the amount of the life insurance.
Solution? If her husband is insurable, then he should take out a new policy and designate her as the beneficiary.
To discuss possible ramifications of a divorce settlement on your estate plans, please contact my office.
Reference: Market Watch (Jan. 12, 2016) "Can I leave my stepchildren nothing if my husband dies?"