A Beneficiary Blunder: Can Your Ex-Spouse Inherit Your Life Insurance?
June 20th, 2013
Words to the wise: keep beneficiary forms up to date. To change a beneficiary — for example, if you get married or divorced or your spouse dies — make sure to file an amended form. Even if your state has a law designed to cover oversights (or procrastination), you can’t always count on it to work.
While an up-to-date beneficiary form avoids uncertainty and probate, and oftentimes taxation, an out-of-date beneficiary form can induce controversy and distress. This teaching point was outlined in Hillman v. Maretta, a very recent case on beneficiary forms and the disaster that went all the way to the Supreme Court.
The case is considered in a recent Forbes article titled“Supreme Court Favors Ex-Wife Over Widow In Battle For Life Insurance Proceeds.”
You see, Warren Hillman left a life insurance policy behind amongst his other assets. Much of the estate simply passed to his then-current wife. Unfortunately for the current Mrs. Hillman, the life insurance policy was subject to a beneficiary designation form that still named his previous Mrs. Hillman, Judy Maretta. Judy and Warren had been divorced for some 10 years.
Despite the pleas of the current Mrs. Hillman, the court had to do it: they gave it all – every penny – to the ex-wife named as beneficiary.
Unlike a retirement account, the singular purpose of a life insurance policy is to provide financial protection to those depending on your life and income. This would seem to exclude a 10 years divorced spouse, absent an alimony requirement in the divorce decree.
Bottom line: the beneficiary form is a matter of contract between the policy owner and the insurance company. The courts can do nothing but enforce that contract.
Are your beneficiary forms ready to be followed to the letter? How will the rest of your estate keep out of the court system?
Reference: Forbes (June 3, 2013) “Supreme Court Favors Ex-Wife Over Widow In Battle For Life Insurance Proceeds”