“After the divorce, Mike logged onto the employer’s benefits system and tried, but failed, to delete Wendy as the beneficiary of his life insurance.”

This estate battle shows how small details can become huge headaches. Several years after this estate battle began, a family wound up in a case that could have been easily prevented, as reported in the Dallas Morning News article “The Way Out of the ERISA Trap: A Tale of Divorce, Death, and Money”.

A couple married and then divorced. The divorce decree clearly stated that Mike was awarded all of his employee benefits, including his life insurance. However, when Mike logged onto his employer’s benefits systems, it would not allow him to delete his ex-wife as a beneficiary of his life insurance. And they have been programmed that way. There are laws concerning removing spouses from employee benefits.

When Mike died, he was survived by his parents, who claimed his estate, but the $377,000 life insurance policy was not part of his estate because his ex-wife was still the beneficiary. His parents filed a claim with the insurance company for the proceeds of the insurance policy.

The first court they filed at was a probate court, so they could be properly recognized as beneficiaries. The probate court found in their favor and named Mike’s dad as the independent administrator of this estate.

The second court was federal court. That’s because employee benefits are governed by a federal law called ERISA, the Employee Retirement Income Security Act, that controls employee benefits, including employer provided life insurance. These matters can only be dealt with by federal court. The federal court ruled that because Mike’s ex-wife was on the beneficiary form, she was the rightful owner. However, Wendy had waived her rights to the insurance benefits when she signed off on the divorce decree.

Mike’s parents were determined to win this battle. Their legal team took the argument next to court three, the original divorce court. Mike’s dad, in the position of the state administrator, argued that while Wendy did have a right to receive the money under ERISA she did not have a right under state law to keep it. She would waive that right in the divorce decree. The divorce court agreed and found that Mike’s estate owned the proceeds. The money was to be turned over to Mike’s parents.

Court number four came when Wendy petitioned the state appellate court to overturn the award. She lost. What were the factors that allowed Mike’s parents to win this case? The divorce decree contains clear language regarding the life insurance policy. If it had been poorly drafted, the results could have been different.

Mike’s parents went through all the correct procedural courts/establishing heirship, then probate, then divorce enforcement case. One step could have been added: a restraining order so that the ex-wife cannot squander the money between the time she received the proceeds and when the final judgment was rendered. Our estate planning attorney can help your family navigate this process. Contact us today.

Reference: the Dallas Morning News (January 24, 2021) ”The Way Out of the ERISA Trap: A Tale of Divorce Death and Money.”

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