Dear Moneyist,
In 1998, my father divorced his wife. They lived in California, but divorced in Texas. In the divorce papers, it stated that my father’s life insurance plan was my father’s property. He left no will. Dad always said we would be taken care of after his death. He leaves myself and my brother who is older, but he has mental health issues and he has a disability.
I discovered my father’s ex-wife cashed in his life insurance plan. My father never took her off as beneficiary, but he kept it in their divorce. Do I have a leg to stand on? He left her on a joint account with $100,000 because I believe that’s how he paid her from his retirement. We settled out of court, and my brother and I received $52,000.
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My dad’s ex-wife asked me about life insurance plans. I didn’t put two and two together and I thought she was trying to help. Well, I learned she was as mean as dad always said and told everyone around here in Texas. I also let the insurance company know, but it was too late. The company already gave her the money.
I have not been able to reach her since then. What can I do? I dropped everything and sold everything to move from Virginia to Texas to care for my father who was a veteran on full disability. My father’s life insurance and bank accounts have been cleaned out by his ex-wife. So I’m left with nothing to fight for my brother and me.
Any advice would be greatly appreciated. My biggest fear is that it’s too late and I can’t afford to go after her.
Brent
Dear Brent,
Divorce does not automatically mean that the spouse is no longer entitled to the policy, if she or he is a named beneficiary. When your father passed away, your former stepmother would have been entitled to that money. However, if she signed papers that stated she must give up that policy when they split their assets, she may now be in hot water. How hot depends on what you do next.
Of course, the beneficiary on a life insurance policy is often changed if one partner agrees to be taken off the policy when the assets are split. The life insurance company doesn’t keep track of such things. It usually pays out to whomever is listed on the policy. The responsibility of who should be named beneficiary lies with the owner of the policy. And that’s where it gets complicated.
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Bruce Jackson from Ohio died in 2013. His divorce decree named his daughter as beneficiary of his life insurance, but he neglected to change the name of the beneficiary from his uncle to his daughter on the policy, so Sun Life paid his uncle instead. A federal judge upheld the divorce decree. Sun Life appealed, but the Sixth Circuit Court of Appeals in 2017 also sided with his daughter.
The divorce decree, which is sanctioned by the courts, trumped the life insurance policy, a private contract. That case was particularly messy as it seemed that no one was trying to claim something that he or she believed did not belong to them. It also took several years to work its way through the courts, so it’s not clear whether the insurer or the uncle repaid the money.
That case, Life Assurance Co. of Canada vs. Jackson, has several key takeaways for everyone else, according to Fleming & Curti, a law firm in Tucson, Ariz. Among them: “Pay attention to beneficiary designations, and follow up when you have life changes.” And, “Way too much of Bruce Jackson’s insurance proceeds went to lawyers. Don’t let that happen to your estate plan.”
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That was not the first showdown over a life insurance policy post-divorce — and it won’t be the last. That case is relevant here because it states that the divorce decree trumps a private contract in the eyes of the law. If your former stepmother agreed to forego the proceeds from this policy, she has a responsibility to uphold that — even if your father failed to take her name off it.
You have several not-insurmountable challenges ahead. You must find a lawyer who will do this on contingency, if you have no money to pay for a lawyer. You can start with Texas Legal Services Center or a legal aid center in your hometown. If or when you win this case, you must locate your father’s former spouse and hope that she hasn’t already spent or hidden the money.
It is a cautionary tale to always complete important paperwork.
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