Did you know that the majority of divorce judgments contain provisions requiring the payor of child and/or spousal support to maintain a life insurance policy as security for the outstanding obligation? Unfortunately, HR leaders must often deal with some of the consequences of an employee’s divorce, including complicated issues around insurance benefits.
Divorce judgments usually require the beneficiary designation to be made as part of the divorce, to cover the outstanding obligations should the payor die before they are met. Unfortunately, once that obligation is fulfilled, the majority of people often forget to change their beneficiary designations on that life insurance policy. Under a recently published Michigan Court of Appeals case, if the beneficiary designation is not changed, the ex-spouse can and will still benefit from that policy upon the policy holder’s death, even if the support obligation has been paid in full, to the dismay of the deceased’s children and possibly a new spouse.
The Michigan Court of Appeals case In Re Estate of John Irving Lett, did in fact award a former spouse the full benefit of a life insurance policy in which she was named as the sole beneficiary, but was purchased only as security for an obligation in their divorce judgment and after the judgment of divorce was entered. The former wife benefited from the windfall, while the estate of the deceased was left with no benefit and no recourse, simply because the deceased neglected to change the beneficiary designation upon fulfilling his obligation. Don’t let this happen to you!
Another key item to note is that some divorce judgments allow the policyholder to maintain a declining term life insurance policy, meaning as the support obligation reduces each year, so does the coverage amount needed. A policy holder with this provision in place can take steps each year to reduce the policy amount so that it remains consistent with the declining obligation, something to keep in mind each and every year until the obligation is paid in full. Don’t just put away that divorce judgment and forget about it, it could cost you (and your estate) more than necessary.
Warner Norcross + Judd LLP provides family law services including divorce, custody, child and spousal support and post-judgment matters. Skilled Family Law attorneys in our Metro Detroit, Grand Rapids and Midland offices can assist in all aspects of this complex process. Contact us at (866) 734-2901 for more information or to schedule a consultation.
