Is This Really a Problem?

[Paddywakk]

Jurisdiction

Other

I was reading an advice column where the letter writer had been told by her long term spouse that he wanted a divorce. One of her issues was she suspects he has recently taken out a life insurance policy listing a grandchild as the beneficiary.

The columnist advised her to see an attorney right away and to bring up this suspected policy as the attorney will be very interested to hear about it. I'm just curious as to why. If I'm divorcing, don't I have the right to take out such a policy if I so desire? The state was not mentioned, if that makes a difference.

 

[cbg]

It depends. I had reason to look into this not long ago.

For a life insurance policy, you can make the beneficiary anyone you want - unless you live in a community property state. If you do, state law likely requires that at least a portion of the policy be payable to your spouse until the divorce is final. State law will determine the portion. But if you're not in a community property state, you can make your life insurance beneficiary your next door neighbor's cat, if you want to.

For a retirement policy, barring very, very limited and strictly regulated conditions, until the divorce is final and I mean FINAL, the spouse must literally sign permission for the beneficiary to be anyone but the spouse. This is Federal law. I may be off on the percentages but I believe the spouse must be the beneficiary for a minimum of 50% of any retirement plan. This can get very messy. We had to invoke our Office of General Counsel before we were done.

But life insurance - pah. Stay out of community property states and grandkids are fair game

 

[justblue]

I was reading an advice column where the letter writer had been told by her long term spouse that he wanted a divorce. One of her issues was she suspects he has recently taken out a life insurance policy listing a grandchild as the beneficiary.

The columnist advised her to see an attorney right away and to bring up this suspected policy as the attorney will be very interested to hear about it. I'm just curious as to why. If I'm divorcing, don't I have the right to take out such a policy if I so desire? The state was not mentioned, if that makes a difference.

Was this the advice column you were reading? Here

FWIW that advice seeker signed off "Ill in Illinois"

 

[Red Kayak]

If I'm divorcing, don't I have the right to take out such a policy if I so desire?

Maybe. Maybe not. Part of it depends on whether the premium is being paid out of separate or marital assets, and how large those premiums are.

 

[zddoodah]

It matters a lot in what state these people live. In at least some states (e.g., California) a spouse is married person is not allowed to designate anyone other than his/her spouse as beneficiary on a life insurance policy unless the other spouse consents in writing. If a policy exists in violation of this rule, the non-insured spouse can sue to reform the policy or, if the insured spouse is dead, to obtain the policy benefit.

Additionally, the non-insured spouse may be able to clawback the premiums assuming they were paid with community/marital funds.

 

[Paddywakk]

Thanks, everyone!

 

[Tax Counsel]

I was reading an advice column where the letter writer had been told by her long term spouse that he wanted a divorce. One of her issues was she suspects he has recently taken out a life insurance policy listing a grandchild as the beneficiary.

The columnist advised her to see an attorney right away and to bring up this suspected policy as the attorney will be very interested to hear about it. I'm just curious as to why. If I'm divorcing, don't I have the right to take out such a policy if I so desire? The state was not mentioned, if that makes a difference.

One of the key facts involved here is what kind of policy it was. A term life insurance has no investment component to it and thus is worthless to anyone except the named beneficiary should the person whose life is the object of the policy dies before the term expires. Thus, in a divorce a term life insurance policy is literally worthless as an asset to divide. It's only value is to the named beneficiary if the person dies during the term of the policy. In states that are not community property states, if the policy named the spouse as beneficiary and that beneficiary gets switched, the spouse who was the beneficiary may ask the court to order his/her soon to be ex to take out another policy (and pay the premiums for it) for the same amount which names the soon to be ex as beneficiary. The court will specify the terms under which that obligation ends, typically some set number years, and earlier if the beneficiary ex remarries.