A named beneficiary on a life insurance policy might seem like the final word in who receives the death benefit, but that is not always the case. Beneficiary designations are often contested after someone dies, especially when complex family situations or legal entanglements exist. The outcome of a dispute often depends not just on the terms of the policy, but also on local and federal law, family law, estate planning issues, and timing. If you need North Dakota interpleader lawsuit guidance call us.
Our firm handles disputes involving beneficiary changes, community property rights, forged documents, and more. Below are some of the most common and legally viable reasons for challenging who receives life insurance proceeds.
Common Grounds for Disputing a Beneficiary Designation
1. Former Spouse Still Named After Divorce
Many states have laws that automatically revoke a former spouse’s beneficiary rights after divorce. However, not all states treat this the same way, and if the insurer is unaware of the divorce or the policyholder failed to update the designation, the ex-spouse may still receive the money unless the claim is challenged.
Example: A man divorced his wife but never updated the beneficiary on his life insurance. When he died five years later, the ex-wife received the payout. The man's adult children contested the payment, and in a state where divorce revokes beneficiary rights, the court redirected the proceeds to the estate, which was then divided among the heirs.
In other states, if the divorce decree does not specifically address the policy or if the policyholder reaffirms the ex-spouse as beneficiary after the divorce, the ex-spouse may legally keep the proceeds. These disputes require careful review of both the policy and the divorce terms.
2. Spouse's Claim Under Community Property Law
In community property states, assets acquired during marriage are considered jointly owned, including funds used to pay life insurance premiums. If the policy was purchased with marital funds and the beneficiary is someone outside the marriage, the surviving spouse may have a legal claim against part or all of the death benefit.
Example: A man in Texas purchased a life insurance policy during his marriage but named his sister as the sole beneficiary. After his death, the widow argued that the policy had been funded with community funds. The court agreed and awarded her half the proceeds. The remaining amount went to the sister.
In cases like these, courts may also allow surviving spouses to assert claims of constructive fraud if they were unaware that marital money was used to benefit someone outside the marriage.
3. Undue Influence or Mental Incapacity
When a life insurance beneficiary is changed shortly before death, questions often arise about the policyholder's mental state and whether the change was made voluntarily. Courts closely examine these late-stage changes when there is evidence that the insured lacked capacity or was pressured by someone close to them.
Example: An elderly woman in a nursing facility changed her life insurance beneficiary from her daughter to her caregiver just days before her death. Her daughter presented medical records showing that her mother had dementia and was heavily medicated at the time. A handwriting expert questioned the validity of the signature on the change form. The court invalidated the change and reinstated the original beneficiary.
Late changes made while the policyholder is seriously ill, isolated, or dependent on others for care are especially vulnerable to challenge. These situations often involve medical records, witness testimony, and handwriting analysis to determine what actually occurred.
4. Fraud or Forgery
In rare but serious cases, beneficiary designations are altered without the policyholder's knowledge. This might involve forged signatures, falsified documents, or unauthorized access to insurance accounts. Insurers typically accept beneficiary change forms at face value, but when credible allegations of fraud arise, the dispute must be resolved in court.
Example: A man died unexpectedly, and his long-time girlfriend discovered she had been removed as beneficiary and replaced with the man's brother. The change had been submitted online using a digital form. A forensic IT review revealed that the form had been submitted from an IP address belonging to the brother's home. The insurer froze the payout, and the court ultimately awarded the benefit to the original girlfriend based on the evidence of fraud.
If there is reason to believe that documents were falsified, or that the insured never actually signed the forms, legal intervention is essential to stop payment and force an investigation.