Wednesday, October 23, 2013

Marital And Family Law: No Life Insurance? Tell Your Client Before The Ex Dies

By Bridget Remington

It is not uncommon for a child support or alimony obligor to agree, in a marital settlement agreement (MSA), to continue to maintain a life insurance policy that names the obligee as beneficiary, as security for future support payments.  Often obligors who already have such coverage in place want to provide this financial security for their minor children and even for their former spouses.

Unbeknownst to many people divorced before July 1, 2012, such provisions in their MSAs are trumped by § 732.703, Fla. Stat., which went into effect July 1, 2012, and applies retroactively.  For anyone who dies on or after the effective date, a “designation made by a decedent providing for the payment or transfer at death of an interest in an asset [including life insurance] to or for the benefit of the decedent’s former spouse is void as of the time the decedent’s marriage was judicially dissolved … if the designation was made prior to the dissolution … .” § 732.703(2), (9), Fla. Stat.

One exception is when the final judgment of dissolution of marriage requires the decedent to acquire or maintain the policy for the benefit of the former spouse or children of the marriage, only if other assets fulfilling the requirement do not exist upon the decedent’s death. § 723.703(4)(d), Fla. Stat.  The former spouse will have no rights to the estate unless the decedent has executed a will under which the former spouse is a beneficiary.  Still, whether other assets exist to “fulfill the requirement” will require a determination of whether the MSA requires the insurance to cover only the amount of unpaid support, and whether and to what extent the insurance was meant to secure child support versus alimony.  See Busciglio v. Busciglio, 116 So. 3d 620 (Fla. 2d DCA 2013) (Altenbernd, J., concurring) (describing complications that can arise without clear statutes governing life insurance in divorce proceedings). 

Another exception is when the final judgment prohibits the decedent’s unilateral termination or modification of the disposition of the asset.  § 723.703(4)(e), Fla. Stat.  It is not clear that this exception would apply when such a prohibition is stated in the MSA but not expressly stated in the judgment itself.  Further, would language simply requiring that the policy be maintained satisfy this exception? 

Given the questions presented by these exceptions, insurance companies likely will not pay anyone but rather file an interpleader action to determine the disposition of the death benefit.  Thus, the surviving former spouse will end up in court, despite having an MSA supposedly resolving these issues.

Until the constitutionality of the retroactive invalidation of existing contracts is successfully challenged, former clients with potentially affected MSAs should be advised of the law and possible remedial steps.  Some may simply ask their former spouses to re-affirm the pre-divorce beneficiary designation.  Otherwise, a motion to enforce the final judgment, premised on the statutory invalidation of the beneficiary designation, may spur a former spouse to action.  At the very least, former clients should provide a copy of the MSA and final judgment to the insurance company.