People commonly obtain life-insurance policies and name their spouse as the beneficiary. They do not always remember to update the beneficiary designation when they get divorced. Under Texas law, designation of a spouse as beneficiary before a divorce will only remain effective after the divorce in certain circumstances. Generally, either the court or the insured must designate the former spouse as beneficiary, or the former spouse must be designated to receive the proceeds in trust for a child or dependent’s benefit. In a recent case, an ex-wife challenged a court awarding a life-insurance policy on the ex-husband to the ex-husband many years after the original divorce.
Insurance Policy Not Divided in Divorce
During the marriage, the parties obtained a life insurance policy on the husband with the wife named as beneficiary. The policy was not addressed in the divorce decree in 2009. The husband subsequently filed a bill of review, and the parties agreed to be co-owners of the policy. They agreed the wife would receive half of the proceeds and the rest would go into a trust for their children. The court ordered the parties to split the policy into two, but the insurance company was unable to do so.
The husband then filed for declaratory judgment, seeking to be named the sole owner of the policy. He also asked for a temporary restraining order against both the wife and the insurer. Alternatively, he sought to divide undivided property. The wife’s counter-petition also sought a declaratory judgment that the policy was her separate property and to divide undivided assets.
The trial court found the policy was an undivided asset of the community estate and awarded it to the husband. The court also ordered him to maintain the policy for the children’s benefit.
Wife Appeals Award of Policy to Husband
The wife appealed, arguing the trial court abused its discretion in not finding the insurance policy was her separate property.
The wife testified she had been named beneficiary of the policy because she was “insecure . . . not being the breadwinner.” The husband testified he thought the policy was awarded to him in the divorce. He denied giving the policy to the wife, agreeing she was its sole owner, or redesignating her the beneficiary after the divorce. He said he asked the court to award him the policy. He also testified he had originally designated the wife beneficiary so the policy would not be at risk if he was sued. He also admitted the wife was the owner of the policy when it was purchased, but said his intention at the time of the divorce trial was for the proceeds to go to the children.
Appeals Court Disagrees with Wife – Affirms Judgment
Pursuant to Tex. Fam. Code § 9.301, the designation of a spouse as beneficiary of a life-insurance policy before a divorce or annulment is not effective after the divorce unless one of three conditions is met. First, the decree may designate the former spouse as the policy’s beneficiary. Second, the insured may redesignate the former spouse as beneficiary after the divorce. Finally, the designation may be effective if former spouse is designated to receive the proceeds in trust for a child or dependent of either party. The decree in this case did not name the wife as beneficiary. The husband testified he had not designated or changed the beneficiary after the divorce. The appeals court found the trial court could have considered Tex. Fam. Code 9.301 and therefore did not err in not finding the policy was the wife’s separate property.
The appeals court rejected the wife’s other arguments and affirmed the trial court’s judgment awarding the policy to the husband and requiring him to maintain it for the benefit of the children.
Life-Insurance Policies Can Often Go Forgotten in a Divorce; Call McClure Law Group Today.
Ideally, a life insurance-policy will be addressed in the original division of property. If you or your spouse is covered by a significant life-insurance policy, a knowledgeable Texas divorce attorney can advise you of your rights and options. Addressing the policy during the divorce may avoid additional litigation later. Call McClure Law Group at 214.692.8200 to discuss your case.