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Life Insurance and Divorce, Part 2: Why Ex-Spouses Should Formalize Any Post-Divorce Agreement to Modify Their Rights to the Proceeds of the Other Party’s Life Insurance Policy

Ex-spouses often enter into informal post-divorce arrangements intended to alter obligations set out in their marital dissolution agreements (MDAs). Such arrangements, whether they include an actual agreement or merely a pattern of conduct, can impact Tennessee life insurance policy cases involving the policies of deceased ex-spouses.

Sometimes, post-divorce agreements involve life insurance policies. These types of agreements are not automatically valid or invalid.  As explained in Holland v. Holland (Tenn. Ct. App. 2001),  whether such agreements are enforceable must be determined by applying contract law principles.  The Holland court made it clear that post-divorce agreements can be enforceable, even if they conflict with the MDA.

What if there’s no evidence of a binding agreement to modify the terms of the MDA or no evidence of a binding agreement that is otherwise contrary to the MDA? In such a case, an ex-spouse may still be able to persuade a Tennessee court to set aside provisions of the MDA. For example, in Puckett v. Harrison (Tenn.Ct. App. 1998), the trial court held that the provisions of an MDA were not binding because the deceased ex-husband intended to forgo the property settlement provisions of the MDA in order to allow his ex-wife to retain her interest in the property.  The trial court based its ruling on the testimony of numerous witnesses about the ex-husband’s intent.  In Puckett, there was no evidence of any agreement. Puckett was affirmed on appeal.

If the parties’ course of conduct merely suggests one or both ex-spouses intended not to follow some term of the MDA, a court may elect to keep the MDA in place.  For example, in Gallimore v Gallimore (Tenn. Ct. App. 2009), the MDA of the divorced parties provided that the ex-wife waived all right, title and interest to the ex-husband’s property and estate, including to his life insurance policy.  At the time the MDA was entered, the ex-wife was named as the beneficiary of a life insurance policy which insured the ex-husband’s life.

The ex-spouses in Gallimore maintained an amicable relationship after their divorce.  They worked in the same office, the ex-husband gave the ex-wife gifts on Valentine’s Day, and he still had a license plate on his truck that spelled out their names.

Perhaps because of their affectionate post-divorce relationship, the ex-husband never removed the ex-wife as the beneficiary of his life insurance policy. Four years after their divorce, the ex-husband died and his heirs filed suit against the ex-wife to divest her of any interest she had in the ex-husband’s assets, including her right to receive the benefits of the life insurance policy which covered the ex-husband’s life.  After the trial court ruled in favor of the heirs, the ex-wife appealed.

In arguing on appeal that she was entitled to the life insurance proceeds in spite of the provisions of the MDA, the ex-wife relied on several cases, including Holland and Puckett, in which courts validated post-divorce agreements or conduct that conflicted with the MDA.  In ruling against the ex-wife in Gallimore, the Court of Appeals of Tennessee distinguished those cases by noting that, in Holland, the parties entered into a binding agreement, while Puckett included testimony from numerous witnesses that the decedent wanted to ignore the MDA and allow his ex-wife to retain her interest in the property at issue.  In the case at hand, however, the Gallimore court noted that “there is absolutely no evidence of a binding agreement between the parties modifying the provisions of the MDA,” nor testimony from other witnesses stating the ex-husband specifically intended to set aside the MDA to the benefit of his ex-wife.

The Gallimore court arrived at its decision even though it was reasonable to infer that the ex-husband simply choose to keep his ex-wife as his beneficiary because he still cared for her.

The Gallimore and Holland decisions have several practical considerations in the context of life insurance policy lawsuits.  For ex-spouses, it may be in their best interests to consult with an attorney and to formalize any arrangement or understanding that modifies or contradicts the terms of an MDA.  Do not assume a court will ignore the conflicting terms of an MDA because of the ex-spouse’s generous actions, even if he or she still remembers you on Valentine’s Day.