The Collision Between Dissolution Agreement and Beneficiary Designation

Often, in a dissolution agreement, the parties provide that the wealthier spouse provide a life insurance policy for the benefit of his or her less wealthy spouse to supplement or completely provide for child support and spousal obligations should the wealthier spouse die prior to full payment of those obligations. A recent case, Sun Life Assurance Company of Canada v. Lee, illustrates what happens when the life insurance beneficiary designation does not comply with the dissolution agreement.

Ronald and Heidi married in 2001 and in 2011 Heidi petitioned for dissolution of marriage. The temporary dissolution order was entered . During the time period of this temporary order Ron purchased a Sun Life insurance policy and named as beneficiary his daughter, Abriel.

The final dissolution order provided that he “continue to maintain that life insurance policy and continue to name Heidi as the beneficiary”. This policy would “secure future payment of both his spousal maintenance obligation and the judgment entered herein”.

Ron passed away before all his obligations were met. Of course, both Abriel and Heidi submitted a claim for the life insurance benefits of $150,000. Sun Life file an interpleader action to have the court determine to whom they should pay the insurance proceeds.

Prior to the litigation Abriel tried to settle with Heidi. At Ron’s death the amount actually due Heidi was $32,384 plus interest. Heidi argued that the full amount of the death benefits of $150,000 should be paid to her with NO amount distributed to Abriel because the dissolution decree required that Heidi be the named beneficiary.

Heidi argued that Ron violated the temporary dissolution order by naming Abriel instead of her as the beneficiary. Further, when he signed the final dissolution agreement he knew that he had not named Heidi as the beneficiary.

Abriel argued that Heidi was only entitled to the amount Ron owed her under the final dissolution decree and that Ron’s violation of the final decree did not entitle Heidi to the balance of the life insurance proceeds.

The court analyzed other state case law and agreed with Abriel that the intent of the decree was that Heidi only receive the funds for the obligations for which the life insurance secured.

ADVICE: Family lawyers should work with estate planners and other advisers to be sure that the documents  (in this case the beneficiary designation) clearly reflect what the dissolution agreement requires. The dissolution agreement should be also very clear as to what the life insurance policy covers and what happens to the excess of the policy if the obligations are met.

WORD OF THE WEEK: Interpleader is a lawsuit between two parties to determine a matter of claim or right to property held by a third party. If, for example, A holds property that he knows he does not own, but that both B and C are claiming, A can sue both B and C in an interpleader action, where B and C could litigate who actually owns the property.

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