Divorce and Insurance

OK, here’s some stuff you should know. It’s about divorces and insurance policies, so pay attention.

An insurance policy is a contract. You agree to pay the insurance company money and they agree to provide some service to you such as paying your hospital bills or defending you in a lawsuit. Those are liability policies. A life insurance policy is called a third party beneficiary contract. That means that you (the first party) have made a contract with the insurance company (the second party) in which you agree to give the company money and upon your death the company agrees to give your beneficiary (the third party) a certain amount of money. The money doesn’t go into your estate, which is what you own at the time of your death. It goes outside your estate directly from the company to the named beneficiary. Which brings us to….divorce judgments.

When people get divorced the final document signed by the Judge is the Divorce Judgment. In the judgment all the property is divided and legal rights and duties are set out. Since you don’t know what those are you’ve discovered one of the traps in doing your own divorce.

What happens if people get divorced but don’t remember to change their insurance beneficiary? If it’s life insurance one of them could die 20 years later leaving a new family and the money going to an ex spouse. To solve that problem the State of Michigan has a law that says that every divorce judgment must say what happens to life insurance proceeds. 99% of the time judgments say that the proceeds go to the estate of the deceased person, even if an ex-spouse is still named as the beneficiary. Got this so far? Good..

What about if someone dies and the beneficiary applies for the benefits and doesn’t tell the company they’re divorced and not entitled to the money? Well, that same law [MCL 552.101] says that if the company pays the money to the named beneficiary without notice that the beneficiary is divorced, the company is off the hook. The  written notice has to come from a representative of the estate or the insured [the dead guy]. Then they don’t have to pay the beneficiary. Just the estate. If they didn’t get the proper notice and pay the beneficiary they don’t have to pay twice. The estate is out of luck. So, notice is important.

Now along comes the Michigan Court of Appeals in a case called Genaw v. Genaw. There the couple got divorced and the ex-husband died. The ex-wife and still named beneficiary, applied for the money and put in her application that she was an “ex-wife.” The estate didn’t give the written notice. The insurance company hadn’t gotten the proper written notice and handed over the dough. Then estate sued them.

The estate said “look, we didn’t get the written notice from the estate so the law says we can pay the beneficiary. We don’t have to pay twice.” The Court of Appeals didn’t agree. They said that putting “ex-spouse” on the application was enough notice and that the insurance company shouldn’t have paid. Now they have to pay the estate as well.

This being Michigan the Supreme Court, an always insurance company friendly forum, will probably over turn this decision. In the meantime the law is: If you’re an insurance company don’t rely on the wording of the statute. If you’re an ex-spouse and you apply for insurance proceeds putting “ex-spouse” on the application and they give you the money, you’re probably going to get to keep it. If you’ve got a divorce judgment, you’d better make sure what’s called the Statutory Insurance Provision reads correctly. If you represent a deceased person’s estate you’d better make sure you notify any life insurance companies that the deceased was divorced. And finally, if you think you can do your own divorce, remember Genaw v. Genaw.