Legacy Assurance Plan For Divorce, Death Beneficiary Accounts and the Importance of Estate Plan Reviews

A 2016 case from Montana shows in detail what can happen when divorce intersects with estate and financial planning. Roy Volk was successful businessman who had a wife and a minor son when, in 2010, he filed for divorce. In the resolution of that case, Volk agreed to create a will naming his son as the sole beneficiary of all his assets, including his $1 million New York Life insurance policy.

Life Insurance as an Estate Planning

Then, a few months after the divorce was finalized, Volk died suddenly at the young age of 45. Volk never created the will required by the divorce court. What was more, he actually owned two New York Life policies, totalling $2.5 million together, and, about three weeks after he filed for divorce, Volk (while a restraining order against moving assets was in place as part of the divorce litigation) changed the beneficiary on each policy from his wife to his sister. When Volk died, New York Life paid out both death benefits to the sister. Volk’s ex-wife sued on behalf of the son to recover that money, claiming that the benefits belonged to the son under the terms of the divorce agreement. The sister argued that the divorce only promised the son Volk’s probate estate and, because life insurance policies operate outside probate, she was allowed receive the money.

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The sister was correct on one point: life insurance policies with valid death beneficiary designations are non-probate transfers. That’s why, if you get divorced or experience any other major life change like a death or a birth in your immediately family, it is a great idea to give your estate plan a review. That review needs to cover, in addition to your estate plan documents like your will and living trust, the other pieces of your estate and financial plan, like life insurance designations and beneficiaries listed on your transfer-on-death assets. In some states, a divorce automatically nullifies a beneficiary designation in which the beneficiary was a spouse who is now the ex-spouse. Other states have no such laws, however. Some people have, after their deaths, left hundreds of thousands of dollars to their ex-spouses because they neglected to update their death beneficiary account designations after a divorce!

legacy assurance reviews for Divorce, Death Beneficiary

Unfortunately for the sister, Montana IS one of the states that says that a divorce invalidates beneficiary designations in favor of a then-spouse-now-ex. Volk’s naming his sister as the death beneficiary on the policies was improper because he did it while the restraining order was in place. If that improper beneficiary change had never occurred, the ex-wife would have remained as beneficiary on each policy. Montana law would invalidated that designation because of the divorce. That would have left the policies with no valid beneficiaries and, when that happened, the life insurance proceeds would have gone into Volk’s estate and become probate assets. By contrast, had Volk, from the beginning, structured his life insurance policies with his wife as the beneficiary and his sister as the alternate, the outcome might have been very different. It is often a good idea to place multiple alternate beneficiaries on all your pay-on-death or transfer-on-death accounts in order to ensure that unexpected events do not send those death benefits into your probate estate.

What all of this does demonstrate is the absolute importance of giving your plan a careful and thorough review after you’ve undergone a divorce to make sure that your plan meets both your own goals and your obligations as established in your divorce case.

Summary:  Legacy Assurance Plan for estate like divorce, or the potential of divorce, can have a broad array of impacts on your wealth. On area that a divorce can touch is your estate plan. Whether the court judgment in your divorce case has ordered changes to your estate and financial plans, or the change in your relationship situation simply makes changes desirable, chances are that your divorce is something that should make you take a fresh look at your plans and take the steps you need to take to ensure that your plan does what you want it to do in light of your current life circumstances.

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