Life Insurance is one of the most neglected aspects of a divorce negotiation, but one of the most important, both during the negotiations and after the divorce is final. Usually, when all of the “big” items have been addressed, such as alimony, child support and the division of assets, someone brings up the issue of life insurance. Typically an after thought, any existing insurance is designated for the children, or if there is a spousal support obligation, the life insurance that the obligor has will be divided among those who are receiving support. Certain times, the obligor will have to obtain additional life insurance, usually a term policy, to make sure the children are taken care of in the event of an untimely death.
After the divorce is final, however, many people never think to pay attention to that provision for the insurance. The consequences of that can be significant. Recently, an unreported decision was made by the Appellate Division, in which this subject was examined. In the case of Thomas v. Thomas v. Reassure Life Insurance Company v. Thomas, the decedent, Scott had a $1 Million life insurance policy. Under the terms of his divorce from his first wife, Christine, Scott had to secure his alimony and child support obligations with Christine receiving $500,000 and each of his two children receiving $125,000. Their settlement agreement also provided that Scott was to provide Christine with annual proof of insurance, and that in the event his alimony obligation was terminated or modified, the obligation to provide insurance would be terminated or modified. Scott made the appropriate designations ( with his father receiving the additional 25%).
Over the course of time, Scott and Christine entered into several agreements under which Scott’s alimony obligation was decreased. However, the parties never entered into any agreement to reduce Scott’s life insurance obligation to Christine.
Scott later married Laura. After his marriage to Laura, Scott attempted to procure additional life insurance, but was unable to do so as it was discovered that he was suffering from a medical condition. Scott then, unknown to Christine, changed the beneficiary designation so that Laura received 60%, Christine received 15% and each of the two children received 12.5%.
Scott passed, and Christine made a claim for the $500,000 and the children each sought $125,000. However, Laura had filed a claim for $600,000. Laura argued that since Scott’s settlement agreement in his divorce from Christine provided for a reduction of life insurance in the event of a reduction in support which had occurred, the court should retroactively reduce the obligation to Christine.
The trial court held, and the appellate division agreed that Scott’s modification of the beneficiary designation such that Christine would take less that was required under the settlement agreement was unlawful, and the court gave Christine her $500,000. The important take away from this case is that life insurance is important, and deserves attention at the time of divorce, and as time goes on. Just as individuals have physicals, they need to review their divorce agreements and judgments to make sure that they are still current.