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The Unexpected Serendipities From Not Cleaning Up the “Loose Ends” In A Divorce

Divorces are designed by law and intended by the parties to conclusively end their relationship with each other and separate their property so that each can go forward with their assets untethered from the marriage. Sometimes, the parties, their lawyers, and/or the law leaves some “money on the table” for the other spouse. This is, thus, a problem that could be cured by the legislature, the parties, and/or their lawyers – but probably will continue to happen to the unwary.

Our previous blog article (9/25/13’s “Too smart for their own good: unintentionally leaving everything to the just-divorced spouse“) discussed what can happen if the parties, while married, use the increasingly popular “revocable trust” in their estate planning and fail to revise both that trust, and their wills, upon divorce.  The Arkansas Court of Appeals, in Hudspeth v. Hudspeth, 2017 Ark. App. 30, has decided that the same can happen with life insurance. In that case, the husband had $60,000 of life insurance provided by his employer. The parties divorced, and the Separation Agreement gave to each party the “cash value” of their respective life insurance policies, and each of their own “basic benefit plans, special retirement supplements, and thrift savings plans,” and any right to claim “any survivor benefits under the other’s benefit plan as a surviving spouse.”

During their marriage, the husband had named the wife as the beneficiary of his life insurance. He did not change that upon divorce. Upon his death, his ex-wife made claim for it, and while the trial court found that the various general provisions recited above somehow removed the ex-wife as the death beneficiary, upon appeal, the Court of Appeals found that none of the above provisions specifically addressed the death benefit of life insurance.  The Court of Appeals confirmed that when insurance policies are not addressed in a divorce decree or property settlement, the rights of the designated beneficiary are determined in accordance with contract law without regard to the effect of a divorce between the insured and the beneficiary.  An ex-spouse named as a beneficiary in such a life insurance policy will be able to collect it.

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