An estate plan is often used in an attempt to circumvent a divorce degree but sometimes it is not a successful idea.
There are many possible requirements placed in a divorce decree and requiring a life insurance policy probably isn't at the top of the list but that order can be the cause of lingering resentment for the ex-spouse who is ordered to pay it.
For example, what if one spouse is ordered to pay the other spouse periodic payments? This order may not be for ongoing support but as the best way to make an equitable division of property. Sometimes the spouse who is ordered to pay might also be ordered to take out a life insurance policy and designate the other spouse as a beneficiary. That way if the paying spouse passes away before all of the payments are made, then the life insurance can be used to make the non-paying spouse whole.
A problem with this is that people often try to get around these orders. How? By designating someone else the beneficiary of the life insurance policies and not making any offsetting changes to their estate plans.
Recently, Market Watch answered what happens in those situations in "Can I leave my stepchildren nothing if my husband dies?"
A reader asked Market Watch a question about her husband's life insurance. It seems that as part of the divorce decree from a previous wife he was ordered to maintain a life insurance policy with his children as beneficiaries until those children reached the age of 23. The policy however listed only the new spouse as a beneficiary.
He had no will and the new spouse wondered if she could keep the insurance money or must she give it to the stepchildren if her husband did pass away.
The answer to the woman's question and other similar questions is simple.
The terms of the divorce can be enforced. The children could ask to have the man held in contempt of court and file a claim against the estate for the amount of the life insurance.
A possible solution? If her husband is insurable, then he should take out a new policy and designate her as the beneficiary.
It might be wise to contact an estate planning attorney for advice before proceeding.
