ISBA Members, please login to join this section

August 2010Volume 57Number 1PDF icon PDF version (for best printing)

Life insurance litigation post-divorce: Easy to avoid, commonly neglected

Under Illinois law, a former spouse’s designation as a beneficiary to a life insurance policy is not automatically terminated upon divorce. Unfortunately, it is also a common occurrence that the named beneficiary is never changed following divorce. As a result of these two factors, litigation is common in this area as a result of competing claims for the proceeds of life insurance policies—ex-spouses who remain the designated beneficiary claim that they are entitled to the proceeds while other family members or subsequent spouses assert that they are the intended beneficiary. This issue arises so frequently in the aftermath of divorce and death that most estate planners we queried had dealt with at least one case. With so much emotional turmoil and a directed focus on the court proceedings, the insured and his advisors frequently neglect to follow up on beneficiary changes during or after a divorce. We have also had several situations where insurance companies have “lost” the change of beneficiary documentation, even after sending us a confirmation. So, it is critical to ensure that a written confirmation of the change is received and maintained with the insured’s important legal and financial documents.

On June 14, 2010, the Northern District of Illinois held that a divorce decree which waived a spouse’s beneficial interest to a life insurance policy trumped any subsequent inference that the spouse remained the intended beneficiary. Richard v. Martindale, No. 09 CV 4159, slip op. (N.D. Ill. June 14, 2010). In the case at hand, the husband, Robert, obtained a life insurance policy in which he designated his wife, Patricia as the primary beneficiary, and his sons the successor beneficiaries. In 2001, Patricia and Richard divorced, but Robert never changed his beneficiary designation. As a result, after Robert’s death his ex-wife Patricia and his sons fought over who should be the intended beneficiary. The Richard v. Martindale case not only brings to light the prevalence and importance of the issue, but it also confirms Illinois’ current law regarding the issue.

Illinois Law

The general rule in Illinois is that contractual rights created independently of marriage survive divorce and are not automatically revoked. Seuss v. Schukat, 358 Ill. 27, 35-36, 192 N.E. 668 (1934). Such rights will be affected, however, if a divorce decree or property settlement agreement includes a waiver of the beneficiary’s interest. In re Marriage of Myers, 257 Ill.App.3d 560, 564, 628 N.E.2d 1088, 1090 (1st Dist. 1993). The waiver must include a clear [emphasis added] expression of the spouses’ surrender of their beneficial interests. In re Marriage of Myers, 257 Ill.App.3d 564, 628 N.E.2d 1090. Broadly worded waivers are not sufficient to defeat a designated beneficiary’s interest. Williams v. Gatling, 186 Ill.App.3d 21, 23, 542 N.E.2d 121, 123-124 (1st Dist. 1989). In Williams, for example, the divorce decree stated that,

Each of the parties does hereby forever relinquish, release, waive and forever quitclaim and grant to the other *** all rights of maintenance, dower, inheritance, descent, distribution, community interest and all other right, title, claim, interest and estate as Husband and Wife, widow or widower, or otherwise, by reason of the marital relations existing between said parties hereto *** or which he or she otherwise has or might have to be entitled to claim in, to or against the property and assets of the other, real personal or mixed, or his or her estate whether now owned or hereafter in any manner acquired by the other party, or whether in possession or in expectancy, and whether vested or contingent.

186 Ill.App.3d 23, 542 N.E.2d 122 - 123.

The Williams court held that the decree would not defeat the designated beneficiary’s interest because the waiver was broadly worded and made no mention of the decedent’s life insurance policy. Williams, 186 Ill.App.3d 24, 542 N.E.2d 124.

When determining whether a waiver is sufficient to defeat a designated beneficiary’s claim, courts will consider two factors. In re Marriage of Velazquez, 295 Ill.App.3d 350, 353, 692 N.E.2d 841, 844 (1998). One factor is “whether the asset in dispute was specifically listed as a marital asset and awarded to a spouse.” In re Marriage of Velazquez, Ill.App.3d 353, 692 N.E.2d 844. The other factor is “whether the waiver provision contained in the settlement agreement specifically states that the parties are waiving any expectancy or beneficial interest in that asset.” In re Marriage of Velazquez, Ill.App.3d 353, 692 N.E.2d 844.

A waiver is more likely to be sufficient if, using straightforward language, it bars any interest each spouse had in the other’s policy and bars each spouse from attempting to claim any of the proceeds. Principal Mutual Life Insurance Company v. Juntunen, 189 Ill.App.3d 224, 227, 545 N.E.2d 224, 225 (1989). For instance in Principal Mutual Life Insurance Company, the waiver in the settlement agreement stated that, “Each of the parties hereby releases and/or waives any interest, beneficial or otherwise, which he or she may have acquired in or to life insurance policy(ies) owned by the other.” Principal Mutual Life Insurance Company, 189 Ill.App.3d 226, 445 N.E.2d 225. Although Illinois courts require that the parties specifically waive their future contingent interest, there is no requirement that the waiver include any magic wording. John Hancock Life Insurance Company v. Cooley, No. 01-CV-4105-JPG, slip op., at *3 (S.D. Ill. Oct. 30, 2001). Even the parties’ failure to use the word ‘beneficial’ in the waiver has not been found to be determinative. John Hancock Life Insurance Company, No. 01-CV-4105-JPG, slip op., at *4.

A waiver is not the only way to defeat a designated beneficiary’s claim. Illinois courts have found that claims by named beneficiaries can also be overcome by showing that the decedent intended to change the designation and took a positive step towards doing so. In re Marriage of Velazquez, Ill.App.3d 355, 692 N.E.2d at 846. To determine whether a decedent took sufficient steps to change the beneficiary, Illinois courts use a “substantial compliance” test. In re Marriage of Velazquez, Ill.App.3d 356, 692 N.E.2d 846. The substantial compliance test requires evidence establishing a clear expression of the decedent’s intent to change the beneficiary and actions that were taken to achieve the change, such that it can be said that the decedent substantially complied with the insurance company’s guidelines for changing the beneficiary. In re Marriage of Velazquez, Ill.App.3d 356, 692 N.E.2d 846. Ultimately, the overriding concern is “the firmness of decedent’s intent.” Dooley v. James A. Dooley Associates Employees Retirement Plan, 92 Ill.2d 476, 422 N.E.2d 222 (Ill. 1982). For example, when a former Justice of the Illinois Supreme Court made notations on a letter, the Illinois Supreme Court held that the letter was not sufficient to change the beneficiary. The court found that the former Justice knew that such notations, on their own, would not change the beneficiary and therefore he could not have believed that a change had taken effect. Dooley, 92 Ill.2d 483, 422 N.E.2d 225. The concern in this case was that the evidence of the decedent’s intent was not unequivocal. Dooley, 92 Ill. 2d 488, 422 N.E.2d 228. Requiring evidence that establishes an unequivocal intent and a positive step to make the change ensures that there is concrete evidence of the intent and that any doubt regarding the intent is eliminated. Dooley, 92 Ill.2d 486-87, 422 N.E.2d 227.

As indicated by the Illinois case law, there are ways to address and remedy the issue of an ex-spouse as a designated beneficiary; however, it is not as easy as throwing in a general waiver or saying that the decedent intended to make a change. Courts will be looking for concrete evidence and specific language that illustrates the parties’ intent.

Automatic Revocation

Not every state requires that parties jump through hoops of waivers and substantial compliance to defeat an ex-spouse’s claim. In fact, some states have enacted statutes that automatically revoke beneficiary designations upon divorce. Under Illinois law, dissolution of marriage will automatically revoke the provisions of wills, revocable trusts, and powers of attorney that pertain to a former spouse. 755 ILCS 5/4-7(b); 755 ILCS 45/2-6(b); 760 ILCS 35/0.01. Other states have extended this automatic revocation to include nonprobate matters as well. A number of states have adopted provisions similar to § 2-804 of the Uniform Probate Code, which automatically revokes beneficiary designations upon divorce. Unif. Probate Code § 2-804 (amended 2006). California’s Probate Code clearly extends the automatic revocation, stating that “Except as provided in subdivision (b), a non-probate transfer to the transferor’s former spouse, in an instrument executed by the transferor before or during the marriage, fails if, at the time of the transferor’s death, the former spouse is not the transferor’s surviving spouse as defined in Section 78, as a result of the dissolution or annulment of the marriage.” Cal. Prob. Code § 5600(a). Under this statute, a non-probate transfer will not fail if there is clear and convincing evidence that the decedent intended to preserve the beneficiary designation. Cal. Prob. Code § 5600(b)(2). Although these statutory approaches may be a more straightforward and easier way to address the issue, until the legislature takes action, it is the responsibility of practitioners to protect their clients’ interests.

Suggestions for Practitioners

Until Illinois extends its statutes to include automatic revocation of non-probate matters, practitioners in both the family law and estate planning fields must work proactively to address the issues that continue to arise in order to protect their clients’ true intent. The Richard v. Martindale case provides an excellent example of some of the steps that should to be taken to protect clients. Had the divorce decree not included an appropriate waiver, Robert Martindale’s ex-wife would have received the proceeds from his life insurance policy rather than his sons. As indicated by this case, one essential step in addressing the issue is to include specific language in a prenuptial agreement or in the divorce decree indicating that any beneficiary designations (excluding ERISA) will be deemed revoked with respect to that spouse. Such provisions should also include a requirement that the spouses cooperate with any subsequent paperwork necessary to perfect the waiver. Ideally, the provision should also reference the specific policy numbers, so as to avoid any claims that the waiver is broadly worded.

Although Illinois case law indicates that no particular language is required in a waiver, practitioners should also stay updated on the specific language that courts find does meet the waiver requirements. For example, the waiver language in Richard v. Martindale was found to be unambiguous and to clearly establish that the parties intended to relinquish their beneficial rights. The language in the judgment for the dissolution of marriage stated,

Except as otherwise provided, each of the parties shall and hereby does waive and relinquish: … all rights, interests, expectancies, and beneficial interests that he or she now has or would have upon the death of the other party under any … life insurance policy … or any other instrument executed prior to the effective date of this Judgment … each of the parties …shall reserve the right to dispose of his or her property in any way that he or she may see fit without restriction or limitation whatsoever. The foregoing provisions shall override any contrary provision in any will, trust agreement, beneficiary designation, or other instrument executed prior to the effective date of this Judgment.

Richard v. Martindale, No. 09 CV 4159, slip op.*1.

By tracking waiver language that has been found by the courts to be valid, practitioners are more likely to safeguard their client’s intent.

Even if a valid waiver is included in the divorce decree, practitioners should also impress upon their clients the importance of changing their beneficiary designations. When the designated beneficiary is changed, issues regarding the decedent’s intent disappear. Of course the work is still not over once the clients have been assisted in changing their beneficiaries, because it is an all too common occurrence that forms designating such changes get lost. It is crucial to follow up with the insurance company, confirm the changes, and keep any documentation of the changes with the clients’ other important documents. ■


Lauren is a partner in the Wealth Protection Group at the law firm of Horwood Marcus & Berk Chtd. in Chicago, 180 N. LaSalle St., Suite 3700, Chicago, Illinois 60601, and may be reached at

Ashley is a rising 3L at Chicago-Kent College of Law and will be a J.D. Candidate in 2011.

Member Comments (1)

What about the front end of this problem? How does the potential beneficiary make sure the owner is paying the premiums?

Login to post comments