The Effect of Divorce on a Life Insurance Policy

This case doesn’t change the law, or even amplify it. But it does provide a good primer about Alabama law on a frequent issue. In this case, it’s the effect of divorce on an insurance policy on the life of one spouse for the benefit of the other spouse. The case is Aderholt v McDonald, Case No. 1150878 (Ala. December 16, 2016). Aside from the insurance company itself, which used interpleader to pay the proceeds of the $150,000 life insurance policy in issue into the court and be done with the controversy, the three main parties are the ex-husband (the court calls him Bobby), the ex-wife (the court calls her Sandra), and the ex-husband’s mother (the court calls her Dolores).

Bobby died in 2014, ten years after his divorce from Sandra, nevertheless having named Sandra as the beneficiary of his life insurance policy. Dolores sued for the policy proceeds, and the trial court granted summary judgment for Sandra. Dolores appealed.

Dolores argued that although the trial court had ordered in its judgment that Bobby was to name Sandra as the beneficiary of the policy, the order was limited to 15 years as security for the payments of alimony in gross Bobby was to make to Sandra. Bobby was still delinquent on those payments when he died, but Dolores argued the only portion of the life insurance policy to which Sandra was entitled was the actual amount by which Bobby was delinquent, $28,000.

Because the case was decided by summary judgment, the supreme court applied de novo review, applying the same standard as that used by the trial court. The supreme court relied on Flowers v Flowers, 284 Ala. 230, 237-38, 224 So.2d 590, 596-97 (1969) for the proposition that in the absence of terms indicating a life insurance policy was conditioned on continuance of the marital relationship, the divorce of the insured from the beneficiary will not change the right of the beneficiary to receive the insurance proceeds. Here, as in Flowers, there was no indication of any term or even any intent on the part of the insured to make the payout to the surviving spouse conditioned on continuance of the marriage.

Dolores had argued that there was precedent for disregarding the beneficiary designation when necessary to do equity or to prevent unjust enrichment. Hanner v. Metro Bank (Ala. 2006) (recognizing the vested equitable interest a child had in his deceased father’s life-insurance policy, even though the father had assigned the policy to a bank as collateral for a loan, based on the fact that a divorce judgment had previously ordered the father to name the child the irrevocable beneficiary of such a policy); Zeigler v. Cardona, 830 F.Supp. 1395, 1398 (M.D. Ala. 1993) (finding that the named beneficiary was not entitled to the proceeds of a life-insurance policy when the decedent had previously submitted paperwork to change the beneficiary but no change was made because of a clerical error by the insurer); Frawley v. U.S. Steel Mining Co., 496 So.2d 731, 735-36 (Ala. 1986) (awarding the proceeds of a life-insurance policy to the decedent’s child even though the decedent had never complied with the terms of a child as the beneficiary of his existing life-insurance policy); and Williams v. Williams, 158 So.2d 901 (1963) (holding that the decedent’s children were entitled to the proceeds of a life-insurance policy instead of the named beneficiary when the decedent had been ordered in a judgment of divorce to name his children as the “irrevocable beneficiaries” of that policy, but he had nevertheless failed to do so).

The supreme court distinguished these cases, however, pointing out that in each of them there was uncontested evidence that the complainant should have received the policy proceeds because of either a court order or the obvious intent of the policy holder to make the change. Here, the supreme court said, there was no evidence, uncontested or otherwise, that Bobby intended to remove Sandra as the beneficiary of his policy.

One might speculate that the fact Bobby and Sandra divorced is reason enough to conclude that Bobby would not have wanted Sandra to be the beneficiary of the Alfa policy; however, such a conclusion runs contrary to Flowers and its progeny, which indicate that a divorce alone will have no bearing on a named beneficiary’s right to receive life-insurance proceeds attributable to the death of an ex-spouse. Moreover, speculation does not rise to the level of substantial evidence. Borsage Offshore, LLC v. Compass Bank, 943 So.2d 782, 787 (Ala. 2006).

Lee’s note: As a divorce lawyer who spends most of his time dealing with cooperative spouses, I applaud and affirm the reasoning of Flowers and now Aderholt. Unlike the warring divorce litigants portrayed in most media accounts, my clients often view their STBX or their exspouse with high regard, sometimes even affection. It’s more common than not for my clients to want the best for the person to whom they were once married and called lover. Flowers and Aderholt stand for the proposition that it’s okay for exspouses to care about each other. Bravo.

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