LIFE INSURANCE AND DIVORCE - Part 2
© 1999 National Legal Research Group, Inc.
Part Two of Two
We will address (1) the authority of a court to order a spouse to name the other spouse as beneficiary under a life insurance policy to secure a property division, alimony, or child support order, (2) the extent to which a former spouse or a child is entitled to the proceeds under such an order, and (3) the effect of the failure of a spouse to comply with such an order. See generally 4 Lee R. Russ & Thomas F. Segalla, Couch on Insurance, 3d 64:24 et seq. (1996); Kelvin H. Dickinson, Divorce and Life Insurance: Post-Mortem Remedies for Breach of a Duty to Maintain a Policy for a Designated Beneficiary, 61 Mo. L. Rev. 533 (1996); Annotation, Death of Obligor Parent as Affecting Decree for Support of Child, 14 A.L.R.5th 557 (1993); Annotation, Divorce: Provision in Decree that One Party Obtain or Maintain Life Insurance for Benefit of Other Party or Child, 59 A.L.R.3d 9 (1974).
The Court's Authority to Order One Spouse to Maintain Life Insurance for the Benefit of the Other Party or Child
For the Former Spouse
Most courts have held that a court in a divorce proceeding has the authority to require a spouse to maintain insurance on his/her life for the benefit of the former spouse. E.g., Epperson v. Epperson, 437 So. 2d 571 (Ala. Civ. App. 1983); Tompkins v. Tompkins, 83 Cal. App. 2d 71, 187 P.2d 840 (1947); Gallo v. Gallo, 184 Conn. 36, 440 A.2d 782 (1981); Moebus v. Moebus, 529 So. 2d 1163 (Fla. Dist. Ct. App. 1988); Ritchea v. Ritchea, 244 Ga. 476, 260 S.E.2d 871 (1979); Appelman v. Appelman, 87 Ill. App. 3d 749, 410 N.E.2d 199 (1980); Robbins v. Robbins, 16 Mass. App. Ct. 576, 453 N.E.2d 1058 (1983); Stivender v. Stivender, 16 Mich. App. 682, 168 N.W.2d 649 (1969); Laumann v. Laumann, 400 N.W.2d 355 (Minn. 1987); Shomaker v. Shomaker, 166 Neb. 164, 88 N.W.2d 221 (1958); Wilbur v. Wilbur, 130 A.D.2d 853, 515 N.Y.S.2d 636 (1987); Alves v. Alves, 644 A.2d 1291 (R.I. 1994); In re Marriage of Young, 26 Wash. App. 843, 615 P.2d 508 (1980); Washington v. Hicks, 109 Wis. 2d 10, 325 N.W.2d 508 (1980). The authority, however, cannot be exercised willy-nilly. Instead, the court's order that one spouse maintain life insurance for the benefit of the other spouse must be predicated on an alimony award to the former spouse, the ill health of the payor spouse, and the ability of the payor spouse to obtain life insurance. For example, in LaGatta v. LaGatta, 160 A.D.2d 481, 553 N.Y.S.2d 774 (1990), the court held that there was no statutory basis to require the husband to maintain life insurance for the benefit of the wife and children where the husband had no legal obligation to pay alimony and he was making other payments to the wife. Accord Hogan v. Hogan, 58 Ill. App. 3d 661, 374 N.E.2d 1040 (1978) (where husband was not delinquent in making alimony payments, court was not warranted in requiring him to keep insurance policy in force naming ex-wife as irrevocable beneficiary); In re Marriage of Lytle, 475 N.W.2d 11 (Iowa Ct. App. 1991) (no need for insurance naming wife beneficiary); Arundel v. Arundel, 281 N.W.2d 663 (Minn. 1979) (requirement that husband maintain life insurance for wife would remain in effect only as long as husband owed wife alimony); Johnson v. Pogue, 716 So. 2d 1123 (Miss. Ct. App. 1998) (requirement that husband make wife beneficiary could last only as long as alimony obligation itself); Addy v. Addy, 97 Ohio App. 3d 204, 646 N.E.2d 513 (1994) (life insurance requirement must terminate with termination of husband's obligation to pay alimony).
Some courts have held that the court may not order one spouse to maintain life insurance for the benefit of the other spouse under any circumstances. The courts in these cases most frequently reason that an order directing a spouse to secure life insurance for the benefit of the other spouse is an order in the nature of alimony that continues past death. Since an alimony obligation generally terminates with the death of the payor, the courts reason, an order for life insurance is impermissible. E.g., Menor v. Menor, 154 Colo. 475, 391 P.2d 473 (1964); Beaman v. Beaman, 393 So. 2d 19 (Fla. Dist. Ct. App. 1980); Hopkins v. Hopkins, 328 Md. 263, 614 A.2d 96 (1992); Narwid v. Narwid, 160 Vt. 36, 641 A.2d 85 (1993).
For the Child(ren)
Most courts have recognized their inherent authority to require the support obligor to obtain or maintain life insurance on his/her life for the benefit of the minor children of the marriage. E.g., Pittman v. Pittman, 419 So. 2d 1376 (Ala. 1982); In re Anderson's Marriage, 541 P.2d 1274 (Colo. Ct. App. 1996); Wolk v. Wolk, 191 Conn. 328, 464 A.2d 780 (1983); In re Marriage of Battles, 564 N.E.2d 565 (Ind. Ct. App. 1991); Graham v. Graham, 595 S.W.2d 720 (Ky. Ct. App. 1980); Vaclav v. Vaclav, 96 Mich. App. 584, 293 N.W.2d 613 (1980); Pauk v. Pauk, 232 A.D.2d 386, 648 N.Y.S.2d 621 (1996); In re Marriage of Willey, 155 Or. App. 352, 963 P.2d 141 (1998); Gimlett v. Gimlett, 95 Wash. 2d 699, 629 P.2d 450 (1981).
Once the children reach the age of majority, the support obligor may remove the children as beneficiaries of the life insurance policy. E.g., Haydu v. Haydu, 591 So. 2d 655 (Fla. Dist. Ct. App. 1991); Lincoln National Life Insurance Co. v. Watson, 71 Ill. App. 3d 900, 390 N.E.2d 506 (1979); Gray v. Independent Life Insurance Co., 57 Mich. App. 590, 226 N.W.2d 574 (1977); Heinze v. Heinze, 122 N.H. 358, 444 A.2d 559 (1982); Forester v. Forester, 234 A.D.2d 264, 651 N.Y.S.2d 87 (1996).
The courts are much more willing to find they have the authority to order the payor to maintain life insurance for the benefit of minor children than for the benefit of a former spouse because the obligation to support a minor child survives the death of the parent and is imposable on the estate of the payor. In re Marriage of Icke, 540 P.2d 1076 (Colo. 1977). Contra Gardner v. Gardner, 264 Ga. 138, 441 S.E.2d 666 (1994) (child support obligation does not survive death of obligor; court may not order life insurance for benefit of children); Niederkorn v. Niederkorn, 616 S.W.2d 529 (Mo. Ct. App. 1981). Of course, the parties are always free to agree that one or both parents will maintain life insurance for the benefit of the children.
Extent of Interest Created in Beneficiary
When the court order or agreement clearly and specifically limits the insured spouse's obligation to maintain life insurance to a support obligation, many courts will similarly limit the right to recover the proceeds so as to satisfy the dollar amount of the support obligation, leaving any excess coverage to any other designated beneficiary under the policy or to the insured's estate. Carbonell v. Carbonell, 618 So. 2d 326 (Fla. Dist. Ct. App. 1993); In re Estate of Monreal, 422 Mich. 704, 375 N.W.2d 329 (1985); Serrano v. Hendricks, 400 N.W.2d 77 (Iowa Ct. App. 1986). Courts will also find that a child's right to recover the proceeds lapses upon the child's reaching the age of majority. Cohn v. Metropolitan Life Insurance Co., 202 Ill. App. 3d 86, 559 N.E.2d 790 (1990).
Thus, if a support obligor dies when the child for whom support is secured is only one year from reaching the age of majority, it can be argued that the child is entitled only to one year's worth of support from the insurance proceeds. See Head v. Metropolitan Life Insurance Co., 449 N.W.2d 449, 456 (Minn. Ct. App. 1990) ("The purpose for which the obligor is required to maintain insurance governs the determination of how much of the proceeds the obligee receives. This is a logical, common-sense approach."). Sometimes policies increase in value from the time of the decree. To resolve disputes over the increased value, the courts will look to the terms of the order or agreement to determine the extent of the insured's obligation. For instance, in Carland v. Metropolitan Life Insurance Co., 727 F. Supp. 592 (D. Kan. 1989), the decree required that the wife be named sole irrevocable beneficiary to certain life insurance policies then held by the husband. The decree indicated the present value of the various policies. One policy was listed as providing the spouse the current value less $1,000. At the time of the decree, the policy had a present value of $14,000. At the time of the insured's death, the policy had a value of $51,480. Before his death, the insured attempted to list his second wife as the beneficiary of the increased value. The court awarded the entire proceeds to the first wife, stating that since the decree required the husband to name his first wife as the sole irrevocable beneficiary he no longer had the power to name any other person as a joint beneficiary.
In the absence of a specific limitation, the court will award the entire amount of the promised insurance proceeds, despite the fact that the recipient will receive more upon the death of the insured than he or she would have received had the insured survived. See Head v. Metropolitan Life Insurance Co., 449 N.W.2d 449 (Minn. Ct. App. 1990) (no implication that obligation to secure support obligation with insurance was intended to mean that insurance was equivalent to support obligation); Kelley v. Medical Life Insurance Co., 31 Ohio St. 3d 130, 509 N.E.2d 411 (1987) (decree requiring that children be named beneficiaries for so long as husband's support obligation existed related only to duration of insurance mandate and not to amount payable to children); Wendell v. Sovran Bank/Central South, 780 S.W.2d 372 (Tenn. Ct. App. 1989). One means to avoid future litigation in this area is to include a provision in the decree or agreement to the effect that the amount of insurance required to be maintained will decrease with each support payment. In re Estate of Tanenblatt, 109 Misc. 2d 490, 609 N.Y.S.2d 532 (Sur. Ct. 1994).
Effect of Failure to Comply with Court Order or Agreement
Quite often, spouses fail to comply with court orders or agreements concerning the maintenance of life insurance. The failure can take a number of forms: canceling the life insurance in existence at the time of divorce, substituting another policy, or changing beneficiaries on an existing policy. When the policies in existence at the time of death differ from those in existence at the time of the decree, provided nothing in the decree or support agreement provides to the contrary, most courts have concluded that the spouse or child who was designated the beneficiary in the decree or agreement is entitled to recover the proceeds in a replacement policy. See Zobrist v. Bennison, No. S97A0243, 1997.GA.1182 (http://www.versuslaw.com) (Ga. July 24, 1997); Rogers v. Rogers, 63 N.Y.2d 582, 483 N.Y.S.2d 976 (1984) (constructive trust was imposed on proceeds of new policy where husband allowed original policy to lapse and had named new wife as beneficiary of new policy); Travelers Insurance Co. v. Johnson, 579 F. Supp. 1457 (D.N.J. 1984); Simonds v. Simonds, 45 N.Y.2d 233, 380 N.E.2d 189 (1978). For example, in Pernick v. Brandt, 201 Mich. App. 293, 506 N.W.2d 243 (1993), a divorce decree obligated the husband to maintain $50,000 in life insurance and to name his wife the beneficiary of the policy. At the time of the divorce, the husband did not own any life insurance. The husband initially complied with the decree by obtaining a $50,000 policy. Two years later he canceled the policy. The following year he purchased a $100,000 policy and named his new wife as the beneficiary. The court agreed that the first wife could claim an equitable interest in the after-acquired policy, although the court remanded the claim to determine if the second wife had a superior equitable interest in the proceeds. But see Greenberg v. Greenberg, 264 Cal. App. 2d 896, 71 Cal. Rptr. 38 (1968) (second wife given status of bona fide purchaser of replacement policy where she had no knowledge of insurance mandate in divorce decree and had paid all premiums in exchange for having her and son named as beneficiaries).
In SMA Life Assurance Co. v. Piller, 846 F.2d 916 (3d Cir. 1988), the court entered an order during the pendency of the divorce action that obligated the husband to designate his children as the beneficiaries of all current life insurance policies. After that initial order was entered, the husband obtained another policy and designated his girlfriend as the beneficiary, without notifying the court of his actions. Without objection by the husband, the court entered the final decree of divorce that obligated the husband to maintain the children as beneficiaries on all present policies. Id. at 919. The court concluded that despite the fact that the after-acquired policy was not in existence at the time the initial order was entered, it was a presently owned policy at the time the final decree was entered, thereby creating a vested right in the children to the proceeds. But see Rau v. Rau, 429 So. 2d 593 (Ala. Civ. App. 1982) (court refused to impose a constructive trust on the proceeds of a replacement policy since the new policy was not in existence at the time of the decree and there was no evidence to suggest that the replacement policy was intended to defraud the children or the court).
Usually, a former spouse learns of the insured's failure to comply with a court order or agreement to maintain life insurance only after the insured's death. If knowledge of a violation is acquired prior to death, the former spouse may seek compliance by use of the court's contempt powers. Graham v. Graham, 481 So. 2d 903 (Ala. Civ. App. 1985); Chandler v. Ratcliffe, 248 Ga. 700, 285 S.E.2d 694 (1982). Once the insured has died, however, the usual remedy available to the former spouse or children is to seek to impose a constructive trust on the proceeds. The extent of the interest on which a trust may be imposed will depend on the extent of the obligation of the insured spouse.
When knowledge of the insured's failure to comply comes after death, the usual remedy requested is the imposition of a constructive trust. See Rollins v. Metropolitan Life Insurance Co., 912 F.2d 911 (7th Cir. 1990); Tintocalis v. Tintocalis, 20 Cal. App. 4th 1590, 25 Cal. Rptr. 2d 655, 659 (1993); Brown v. Brown, 223 Ill. App. 3d 839, 585 N.E.2d 1125 (1992); Starleper v. Hamilton, 106 Md. App. 632, 666 A.2d 867 (1995); Green v. Green, 13 Mass. App. Ct. 340, 433 N.E.2d 92 (1982); Thiebault v. Thiebault, 421 N.W.2d 747 (Minn. Ct. App. 1988); McKissick v. McKissick, 93 Nev. 139, 560 P.2d 1366, 1369 (1977); Singer by Cohen v. Jones, 173 Wis. 2d 191, 496 N.W.2d 156 (1992).
Complications may arise in imposing a constructive trust depending on the party holding the proceeds at the time of the equitable action. When the proceeds are still in the hands of the insurer, an interpleader action may be filed in which both claimants assert their various claims to the proceeds. More troubling is when the proceeds have already been tendered to the designated beneficiary and the former spouse or child of the insured attempts to recoup the funds. In Richetti v. Sanzo, Civil Action No. 11760, 1994.DE.9 (http://www.versuslaw.com) (Del. Jan. 5, 1994), the court permitted the imposition of a constructive trust on the proceeds of several insurance policies paid to the decedent's second wife. The divorce decree with his first wife obligated the husband to name his first wife as the beneficiary of a $15,000 life insurance policy. One year after the divorce, the husband removed the first wife as the beneficiary and named his two minor sons as the beneficiaries of the policy. During this time, he continually reassured his former wife that she was properly designated as the recipient of the policy. The husband then remarried and acquired several other policies naming his second wife as the beneficiary. Upon the husband's death, the court concluded that it was proper to impose a constructive trust on the proceeds of the policies acquired after the divorce which named the second wife as the beneficiary. The court concluded that it would be inequitable to allow the second wife to retain property at the expense of the first wife.
Family law practitioners and judges should be extremely careful in drafting any insurance mandates. If the insurance mandate is intended to secure a support obligation, both parties should consider whether the security is intended for the duration of the support period or for the amount of support obligation that would otherwise be tendered. Requirements that the insured spouse provide the court with proof of the beneficiary designation and with proof that the insurer has been notified of the order or agreement may prevent future litigation.