How Does Life Insurance Work After a Divorce in Wisconsin?

Courts typically prevent spouses from removing the other from insurance policies. After the divorce is final, a spouse usually can remove their ex as a beneficiary. However, the court could order that the ex remain on the life insurance policy alimony or child support is owed.

Attorney Joanna Fraczek of Sterling Law Offices explains how the landmark case Washington v. Hicks 09 Wis. 2d 10 , 325 N.W.2d 68 (Ct. App. 1982) sets the precedent for how the court rules on how life insurance is paid out after a divorce in Wisconsin.

How is Life Insurance Paid Out After a Divorce in Wisconsin?

In the event something were to happen to the spouse required to keep a life insurance policy that named the ex-spouse as a beneficiary, how would a life insurance payout be handled post-divorce?

To avoid going too far into the weeds on such a complicated topic, let us start with an excellent illustrative example, in the 1982 Wisconsin divorce case of Washington vs. Hicks[2], a husband, was ordered to maintain his life insurance with his ex-wife listed as the beneficiary.

Sometimes, it is required to maintain life insurance to make sure alimony or child support can be paid in case the paying spouse passes away. This is relatively common, but the particulars are largely down to the individual policies. In this case, the death benefit the wife would receive was valued at $5,400. The court required the husband to maintain life insurance at that value.

For fifteen years, the husband maintained the policy. However, contrary to the judgment, he changed the beneficiary. Additionally, at that time, the death benefit had increased in value to $18,500. Sadly, the husband died in an accident. And because it was subject to double indemnity, the payout to the beneficiaries was to be doubled.

There are two questions to consider here:

  1. Did the ex-wife receive a payout even though the husband had changed the beneficiary?
  2. Did the increase in benefits extend to the ex-wife?

First, and perhaps most importantly, even though the husband tried to remove his ex-wife as a beneficiary, she was still paid after his death.

A divorce judgment is a legal agreement and must be upheld. It explicitly said the wife was entitled to a benefit, so even though he changed the beneficiary, she was still paid. This is why family lawyers go to such pains to make sure these provisions are included in the judgment.

Second, the wife argued she was entitled to more than $5,400 since the benefit had increased over the years. If the policy increases in value, should she be entitled to more?

The answer to this one is a bit more complicated.

When life insurance is considered part of the marital property, dividing it can be handled in several ways. The simplest way is if the policy can be cashed out. In that case, one split the proceeds from the policy in half. But, as mentioned above, a person may be ordered to maintain their ex on the policy to cover child support or alimony.

For this, how a divorce judgment is worded is absolutely crucial. In Washington vs. Hicks, the wife, was, by law, required to stay a beneficiary – but for the amount that was valued at the time.

Contributions or changes made after the divorce were not considered in the judgment. Therefore, any increase in value was no longer considered marital property. So even after she tried to appeal the decision, she only received the original $5,400 that was agreed on (paid double because of double indemnity).

Every policy is different, but the big takeaway here is that the wording of the divorce judgment is critical. Unless it is explicitly part of the wording to account for increases in benefits, then it will be paid out as written. Life insurance is probably something that we do not want to think about on the best of days, and that is even truer during a divorce.

However, taking the time to go over the particulars of life insurance with a family lawyer is important for both you and your family's future.

Case Law Friday is a Sterling series focused on communicating in layman's terms cases of precedent, statutes that guide decisions, and court procedures important to getting results in family law.

We hope these deep dive conversations create clarity, enabling you to better understand the rules that govern how decisions get made in family court.

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