Dear Moneyologist,
My husband and I married last year. This is a second marriage for each of us. I have two adult age children and he has two minor children. In his divorce decree it states that he shall maintain a $300,000 life insurance for his children as beneficiary until they reach the age of 23. However, on the actual policy he only has me listed as beneficiary. There is nothing indicating that this is left for his children should he pass prior to them reaching age 23. What would the legal liability be on this if he should pass before me?
Am I legally obligated to turn this over to the children because it states it in his divorce? There is no written will at this time indicating anything for his children.
Diane
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Dear Diane,
Life insurance is regarded as non-probate, meaning it’s not part of a person’s estate. But even without a will, the divorce decree still matters.
This is not the first time a reader has suggested giving step-relatives the short shrift when it comes to inheritance. In November, Elsee in Vancouver, Wash., wrote to the Moneyologist to say that her late mother had effectively cut her step grandchildren out of her will before she died by transferring assets beyond the reach of probate, even though her mother’s late husband wanted to divide his estate between Elsee and his grandchildren. In this case, she could have kept the lot. But I advised her to divide it.
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If you wanted to become beneficiary of your husband’s life insurance policy after he’s gone, you would likely win the battle (the payout from the life insurance) but lose the war ($300,000 from your husband’s estate). The divorce decree places the obligation on your husband to maintain the life insurance policy, says John Slowiaczek, president-elect at the American Academy of Matrimonial Lawyers and an attorney based in Omaha, Neb., and even with you as the beneficiary on his policy, he would likely be in contempt of court. His children could make a claim of $300,000 against his estate, if he died with you as his beneficiary on that policy.
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“This kind of case is pretty common,” Slowiaczek says. He’s seen many cases over the years “where the second wife doesn’t want the first wife or first wife’s family to have anything. They want it all. Often times, the men don’t want to fight with their new wives.” But changing a life insurance policy that goes against the terms of the divorce decree would be asking for trouble. “He would likely be in contempt of court,” he adds, “and that could get ugly.” Sticking it to the ex-wife is one thing, he adds, but changing the terms of this policy “would be trying to stick it to the children.”
Still, you wouldn’t be the first second wife to want to claim a life insurance policy that was written for her husband’s first family. In 2013, the U.S. Supreme Court ruled in favor of a 66-year-old man’s ex-wife (rather than his widow) as the beneficiary of a life insurance policy worth over $124,000. In this case, he may not have wanted his ex-wife, who he divorced 10 years before his death, to claim his life insurance policy. But with or without a divorce decree, the document given to the insurance company had his ex-wife’s name on it.
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In many cases, there is financial chaos among warring children when a parent dies without leaving a will, especially if one child has been quietly working their way into the parent’s finances. Case in point: “S. in Virginia” wrote a letter to say she had discovered that her father had died without leaving a will and, even though he wanted to split his estate between his children, her father had accidentally made her sister an owner of his bank account, not just a signatory, meaning she owned the money in that bank account. Nice work, if you can get it.
You appear to be flirting with the idea of going head-to-head with your husband’s children over his life insurance policy, should he die before his children reach the age of 23. That’s a move that would make you $300,000 richer. Of course, he could also write a will to say he wants you to have the loot. But if a will did exist, some state courts have ruled that life insurance contracts honor the divorce decree rather than the will. The takeaway? People should be clear about their wishes and put them down on paper, and not rely on the goodwill of others to do the right thing after they’re gone.
It’s more likely that you’re out of luck and out of $300,000.
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Do you have questions about inheritance, tipping, weddings, regifting, or any tricky money issues relating to family and friends? Send them to MarketWatch’s Moneyologist.
