For decades, the American divorce rate has hovered around 40 to 50%. Given that most marriages produce at least one child, that means there are a lot of children out there who are getting caught in the crosshairs when their parents file for divorce. Fortunately for those children, the laws and the courts seek to protect them as much as possible.
For example, any time a couple splits their assets, the court will typically make sure the children receive sufficient security so that their lives are not too terribly depleted due to their parents’ decision. One asset that frequently must be dealt with during divorce negotiations is the life insurance policies of one or both parents.
In most households, a person’s spouse is the designated beneficiary under a life insurance policy. When couples divorce, however, each person usually wants to change that designation. In many cases, the way divorce lawyers and family courts deal with this is to mandate that the divorcing parents name their children as policy beneficiaries. Typically, the court will require each parent to maintain their policy in that manner until all children reach at least the age of 18. That way, if one parent passes away, the children can still be provided for.
Lamentably, not all parents follow the court’s instructions in that regard. Especially in cases where a divorced parent falls in love with a new partner, they will often change their policy beneficiary without notifying anyone of the change – certainly not their ex-spouse or the court!
So, what happens when that parent dies before his children reach the age of majority? This article explores one such case.
A happy family broken apart
Tom and Linda married in 1992 and had one child, Timothy, in 2000. Timothy was a rambunctious child who suffered from ADHD and other learning disabilities. By third grade, Timothy had been held back a year, kicked out of multiple schools, and placed in a special needs program. The stressors of raising a troubled child proved to be too much for Tom and Linda. By 2010, Tom was having an affair and by 2011, the couple was divorced.
Perhaps predictably, the divorce was hotly contested. The couple fought tooth and nail over every last asset. The only thing Tom did not fight for was custody of Timothy. He willingly gave Linda full custody with only occasional parental visiting rights.
Between the two of them, Tom, a physician, had been the principal wage earner. While he made over $450,000 per year, Linda made only $36,000 as a self-employed jewelry maker. Tom’s employer also provided a highly generous benefits package, including a life insurance policy worth $2,000,000. During their marriage, Linda had been named as the sole beneficiary under that policy. As they divorced, Tom made it abundantly clear that he didn’t want Linda to see a dime of that money if he were to pass away. As such, Tom’s life insurance policy was one of the most fought over assets in the couple’s estate.
Ultimately, the family court judge ordered Tom to name Timothy as the sole beneficiary under the life insurance policy. He further ordered that Tom maintain that policy (or a like policy) in that manner at least until Timothy reached the age of 21.
Tom did not have much reverence for lawyers or the courts. He didn’t much care what the judge had ordered with respect to his life insurance policy and he was quite certain there would be no way for anyone to find out if he changed his beneficiary once the divorce was finalized.
That’s exactly what Tom did. Six months after the divorce decree issued, Tom changed his beneficiary designation to name Pamela, the woman he had had an affair with and now planned to marry. Upon receiving Tom’s beneficiary designation change form, the life insurer dutifully made the change to Tom’s policy. The company was unaware of the divorce decree.
A showdown over policy benefits
Within three years of the divorce, Tom died during a skiing accident. He hadn’t seen Linda or Timothy since the divorce. In fact, they only learned of his death after reading his obituary in the local paper. Within a matter of days, Linda filed a claim on Timothy’s behalf for the life insurance policy proceeds, as mandated by the divorce decree. Almost simultaneously, Pamela filed a claim for benefits against the policy. She had no idea Tom had been supposed to maintain Timothy as the beneficiary and, frankly, she wouldn’t have cared if she had known.
The insurance company, of course, reviewed the policy and determined that the plain policy language called for Pamela to receive the $2,000,000 payout. Consequently, the insurer sent Linda a claim denial letter stating that Pamela was the rightful beneficiary and would receive the death benefit.
Linda was incensed. She immediately called her divorce lawyer who referred her out to an attorney specializing in the wrongful denial of life insurance claims. He reviewed her claim submission, the divorce decree, and the denial letter and decided Linda needed to file a lawsuit. Within days, he filed a suit on Timothy’s behalf, which named both Pamela and the insurance company as defendants. The lawsuit simply asked the court to review the documentary evidence and determine who should receive the death payout as between Timothy and Pamela.
Not surprisingly, primary exhibit relied upon by the life insurance lawyer was the clear and unambiguous divorce decree requiring Tom to maintain the policy for Timothy’s benefit. While the court found that Tom’s intent was for policy benefits to go to Pamela, he legally didn’t have the right to exercise his intent. Rather, the policy payout had to go to Timothy.If you have a child who has been wrongful replaced by another life insurance beneficiary, please don’t hesitate to contact our firm to discuss the situation. We fight these battles all the time and have a very successful track record of protecting children’s rights. Call today.