Quite often, particularly when a divorcing couple has minor children and one of the parents has been the dominant income producer, the couple may agree that the income producer utilize life insurance. This can be used as a guarantee that adequate funds will be available to provide for the children until they reach a certain age, or perhaps until they complete their education and get started in life.
Care and attention need to be given to the designation of life insurance beneficiaries, however, if the goals of the former spouses are to be met. Failure to follow a few important rules can result in significant problems for both the estate of the deceased former spouse, as well as the deceased’s children.
It may be that the income producer has already established one or more life insurance policies and has already designated the former spouse as the primary beneficiary. The divorcing couple may informally decide that the existing policy or policies can continue to provide protection for the interests of the minor children.
Unfortunately, such an informal arrangement often fails since, under Texas Family Code § 9.301(a), the divorce generally operates so as to extinguish all rights that the former spouse might have in the insurance policy. Unless special arrangements are made, if the income provider were to die after the divorce, the insurance proceeds would typically pass not to the former spouse, but rather to any alternate beneficiary named in the policy. If the policy failed to name such an alternate, the proceeds would typically pass on to the income provider’s estate. If the income provider failed to establish a testamentary trust for the benefit of his or her children, their well-being might be put in jeopardy. Indeed, the surviving former spouse might have to initiate litigation on behalf of the children. That often results in needless expense.
If the income producer acquires life insurance after the divorce and designates his or her former spouse as the primary beneficiary, that designation is unaffected by Texas Family Code § 9.301. At the death of the income producer, the life insurance proceeds would be paid over to the former spouse, but there’s a wrinkle. Payment of the proceeds to the former spouse is independent of any child support obligation that the income producer may have had. That is to say, even if he or she had no actual continuing obligation (e.g., the child or children have reached 18 years of age, or have completed their education), the life insurance proceeds would still go to the former spouse. Those who would otherwise benefit from the estate might resent the former spouse’s apparent windfall.
While going through a divorce is often a frustrating and emotional experience, it is also a time for sober reflection upon one’s estate plan. Care needs to be given to crafting a plan that is not only consistent with one’s personal goals, it must usually also reflect the continuing needs of children and other family members. Mistakes can be heart-breaking and expensive.
The attorneys at Romano & Sumner have more than 20 years of combined experience providing expert legal assistance to clients in all sorts of estate and trust matters. We know the “ins and outs” of the Texas Estates Code. We understand the interaction between estate and insurance matters and the Texas Family Code, and we can help you modify your existing plans or craft completely new ones to meet your needs and the needs of those whom you love.
At Romano & Sumner, we pride ourselves not only on our professionalism, but also upon our client service. We know that each situation is unique. We return phone calls within one business day. We keep our clients well informed as to the status of their case. We complete the work within the allotted time frame. Call us at 281-242-0995 or complete our online contact form.
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