Waiving Property Rights in a Divorce Settlement May Not Mean You Waived Your Rights Regarding Insurance Policies
A more difficult question arises when a property settlement agreement does not specifically assign the life insurance policy to one spouse, but instead the spouses waive all rights in the property of the other. Does this general waiver act to waive not only the property rights in the life insurance policy itself, but the beneficiary rights as well? Most courts allow a former spouse to waive beneficiary status by a separation agreement that specifically encompasses the proceeds. The waiver of survivor benefits or life insurance proceeds, however, must be specific:
Where there is no provision that the effecting of the settlement agreement should deprive her of her rights as named beneficiary, and she, in fact, remains named beneficiary, the settlement agreement will not be given a broader scope than its express terms specify, and she will not be barred from her rights as the named beneficiary.
4 Couch on Insurance 3d 64.19 at 64-35 (1996); accord 2 Stephen W. Schlissel et al., Separation Agreements and Marital Contracts 9A:07 at 126 (2d ed. 1997). See generally Annotation, Property Settlement Agreement as Affecting Divorced Spouse’s Right to Recover as Named Beneficiary Under Former Spouse’s Life Insurance Policy, 31 A.L.R.4th 59 (1984 & Supp. 1999). Consequently, a general waiver of rights will not affect a waiver of survivor benefits or life insurance proceeds; the waiver must be specific.
In fact, each party’s general waiver in the agreement of the interest in the other’s estate does not affect life insurance; if the parties wish to waive their respective interests in the policies, a specific reference to the life insurance interest is necessary, particularly as to any beneficiary designations.
2 Alexander Lindey & Louis I. Parley, Lindey on Separation Agreements and Ante-nuptial Contracts 18.01 at 18-24 (2d ed. 1997). Various reasons have been put forth for this rule, but one consistent strain running through all the cases considering the scope of general waivers and beneficiary rights has been that beneficiary rights are a matter of contract law and do not flow from the marital relationship. Consequently, a general waiver of rights that arise out of the marital relationship cannot affect beneficiary status; a change of beneficiary must be accomplished by a contract that addresses those rights. E.g., National Auto Dealers & Associates Retirement Trust v. Arbeitman, 89 F.3d 496, 498 (8th Cir. 1996) (waiver of pension rights "arising out of the marital relationship" not sufficient to waive survivor benefits; wife’s rights arose from beneficiary designation); Rountree v. Frazee, 282 Ala. 142, 209 So. 2d 424 (1968) (interest in life insurance policy does not arise from the marital relationship); Nunn v. Equitable Life Assurance Society, 272 N.W.2d 780 (N.D. 1978) (policy does not condition right to proceeds upon continuance of marriage and so does not arise out of marital relationship).
The leading case espousing this rule is Mullenax v. National Reserve Life Insurance Co., 29 Colo. App. 418, 485 P.2d 137 (1971). In this case, a Colorado Court of Appeals interpreted a separation agreement that did not specifically mention insurance and found that general language was not sufficient to terminate the beneficiary’s rights.
The terms of the separation agreement required plaintiff [divorced wife] to convey all of her "right, title and interest in and to any and all property" held by the husband. The clear meaning of this clause is that plaintiff was conveying unto the decedent any interest in the property to which she might have had a legitimate claim or interest. She had no present interest in this policy, only a mere expectancy. . . . Plaintiff might have renounced or disclaimed her expectancy in the policy by this or any other agreement, but this is sharply distinguishable from the wording of the agreement itself, which speaks of conveying any interest she might have in the decedent’s property.
The agreement does not contain a renunciation of her expectancy in the policy and, absent such a specific disclaimer, we will not construe the agreement so as to include a renunciation of her right to take as beneficiary under the policy. It is not the duty of the court to make new contracts for the parties, but merely to interpret the one as written.
485 P.2d at 139-40 (citation omitted); accord, e.g., Estate of Altobelli v. IBM Corp., 849 F. Supp. 1079 (D. Md. 1994) (applying Maryland law) (general release clause waiving claims and interests cannot waive beneficiary status because it is no more than mere expectancy); Manufacturers Life Insurance Co. v. Dougherty, 986 F. Supp. 928 (E.D. Pa. 1997) (applying Pennsylvania law); McClain v. Beder, 25 Ariz. App. 231, 542 P.2d 424 (1975); Cooper v. Muccitelli, 661 So. 2d 52 (Fla. Dist. Ct. App. 1995) (general release clause does not vitiate ex-spouse’s beneficiary designation); In re Marriage of Velasquez, 295 Ill. App. 3d 350, 692 N.E.2d 841 (1998); In re Marriage of Myers, 257 Ill. App. 3d 560, 628 N.E.2d 1088 (1993); Lynch v. Bogenrief, 237 N.W.2d 793 (Iowa 1976); Hughes v. Scholl, 900 S.W.2d 606 (Ky. 1995); Standard Life Insurance Co. v. Franks, 278 So. 2d 112, 114 (La. 1973); Cassiday v. Cassiday, 256 Md. 5, 259 A.2d 299 (1969); Eschler v. Eschler, 257 Mont. 360, 849 P.2d 196 (1993); Ohran v. Sierra Health & Life Insurance Co., 111 Nev. 688, 895 P.2d 1321 (1995) (divorce decree must contain explicit language to divest former spouse of his or her rights as beneficiary); Redd v. Brooke, 96 Nev. 9, 604 P.2d 360, 361 (1980); Gerhard v. Travelers Insurance Co., 107 N.J. Super. 414, 258 A.2d 724 (Ch. Div. 1969); Raack v. Bohinc, 17 Ohio App. 3d 15, 477 N.E.2d 1155 (1983); Bruner v. Bruner, 864 P.2d 1289 (Okla. 1993); Prudential Insurance Co. v. Weatherford, 49 Or. App. 835, 621 P.2d 83 (1980); Girard v. Pardun, 318 N.W.2d 137 (S.D. 1982). See generally Note, Life Insurance Beneficiaries and Divorce, 65 Tex. L. Rev. 635, 637 (1987).
Some states, eschewing a bright-line rule, take a slightly different approach. In Kansas, for example, the court attempts to ascertain the parties’ intent and will construe a settlement agreement or divorce decree to effectuate such intent, even though the insurance policy is not specifically mentioned. In Hollaway v. Selvidge, 219 Kan. 345, 548 P.2d 835 (1976), the Supreme Court of Kansas interpreted a property settlement agreement to include certain insurance policies even though the policies were not specifically mentioned. The agreement, which was approved by the court and incorporated into the divorce decree, referred to "all property rights and claims." The Kansas court stated the general rule that divorce does not affect a beneficiary designation and then discussed its interpretation of the exception to the rule:
However, it is well settled that as part of a separation or property settlement agreement a wife may, upon divorce, contract away her right to claim insurance proceeds from policies on her husband’s life in which she is named as the beneficiary . . . . The primary rule of construction of a settlement agreement in connection with a divorce action is that, if possible, the court must, as in other contract cases, ascertain and give effect to the mutual intention of the parties at the time the contract was made.
. . . Thus the rights of a beneficiary to the proceeds of an insurance policy upon the life of a divorced spouse may be terminated by an agreement between the parties which may be reasonably construed as a relinquishment of the spouse’s rights to the insurance[.] 548 P.2d at 839 (citation omitted).
The Kansas court also noted that the wife’s interest in the policy was only an expectancy that could be divested by the husband’s change of beneficiary, but it still found that the agreement included the insurance:
We recognize that each case of this kind must be decided on its own facts in determining the parties’ intention. Here the settlement was sufficiently comprehensive in nature to demonstrate an intent to embrace and settle all the parties’ affairs of whatever nature. They broadly agreed to settle all rights and claims between them and each relinquished all right, title and interest in the property of the other. Id. at 840.
Because the focus of the inquiry is the intent of the parties, the courts have focused on a few major indicia of intent: Whether the policy owner had an opportunity to change the beneficiary designation but did not, whether there were any representations that the beneficiary status would not be changed, and whether the parties remained friendly after the divorce. E.g., Lincoln National Life Insurance Co. v. Blight, 399 F. Supp. 513 (E.D. Pa. 1975), aff’d, 538 F.2d 319 (3d Cir. 1976) (insured had ample opportunity to change beneficiary status but did not, and parties continued friendly relations after divorce; held wife’s relinquishment of rights did not include beneficiary status of life insurance policies); Estate of Keeton v. Cherry, 728 S.W.2d 694 (Mo. Ct. App. 1987) (agreement, on the whole, evidenced intent of parties to release or revoke all of ex-wife’s right to life insurance policies); Vasconi v. Guardian Life Insurance Co., 124 N.J. 338, 590 A.2d 1161 (1991) (property settlement agreement providing for mutual waivers of all claims or obligations raises presumption that beneficiary status was revoked; former wife would be entitled to proceeds if she could overcome presumption by evidence of parties’ intent); Lelux v. Chernick, 119 Ohio St. 3d 6, 694 N.E.2d 471 (1997) (language of separation agreement was sufficient to eliminate husband and wife as beneficiary of the other, even without specific language, where their expression to waive all rights was unequivocal); DeVane v. Travelers Insurance Co., 8 N.C. App. 247, 174 S.E.2d 146 (1970) (insured’s failure to formally change beneficiary left beneficiary rights intact, even though ex-spouse "relinquished rights" under policy); Nunn v. Equitable Life Assurance Society, 272 N.W.2d 780 (N.D. 1978) (where there was nothing in the transcript of the divorce proceedings to indicate the parties’ intent to waive rights in insurance proceeds).
Because the courts look to the intent of the parties concerning policies existing at the time of the divorce, an ex-spouse will not be barred from taking the proceeds of a life insurance policy when the other ex-spouse took out the policy after the divorce was final. Raggio v. Richardson, 218 So. 2d 501 (Fla. Dist. Ct. App. 1969).
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UNREIMBURSED EXPENSES--The final divorce decree, which should reflect the continuing medical and health insurance coverage of every member of the family, should also stipulate who will be responsible for unreimbursed expenses, such as the deductibles, co-pays, co-insurance, vitamins, over-the-counter items, or braces.
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