Competing Life Insurance Claims Between the Spouses in a First and Second Marriage

Posted on by Jennifer Buell in Family Law.

Family law can not only put a husband and wife in adversarial litigation; but also create competing claims between the spouses in a first and second marriage.  Consider the following situation faced by the Ferguson, Schetelich & Ballew Family Law Practice group.

A divorced husband was obligated by the Court’s judgment to provide life insurance for the benefit of his divorced wife.  Over time, the husband remarried. The new couple made reciprocal Wills benefiting one another, and each changed their life insurance beneficiary to name the other.  When the husband unexpectedly died, both the first and second spouse make claim on the life insurance benefits.  What is Maryland law is such a situation?  Does the first or second spouse have priority?

The answer turns on a variety of factors.  Generally, the proceeds of a life insurance policy are payable to the person designated as the beneficiary.  Blair v. Baker, 196 Md. 242 (1950).  This would seem to decide the case for the second spouse.  But that is not the end of the matter.

The first spouse sought the imposition of a constructive trust.  A constructive trust is an equitable remedy, in which a court acts to avoid an inequitable result, prevent unjust enrichment, and to do right by both sides. Wimmer v. Wimmer, 287 Md. 663 (1980).  Under the facts described above, the law will award the life insurance proceeds to the first spouse, unless the second spouse (i) gave good consideration for her designation as beneficiary, (ii) she did not have any knowledge of first wife’s designation, and (iii) she did not have any knowledge of the provisions of the separation agreement.  The Equitable Life Assurance Society of the United States v. Jones, 679 F.2d 356, 358-359 (1982); Borotka v. Boulay, 268 Md. 244, 299 A.2d 803 (1973).

Such a determination is very fact specific.  In the scenario described above, the second spouse clearly had given consideration, having named the husband as the beneficiary of her insurance policy and her estate.  The case focused on whether she had knowledge of the court’s judgement of divorce and the husband’s legal obligation to provide the insurance benefit.

But another factor impacted that litigation – one of the life insurance policies involved was provided through employment.  As such, it was part of an “employee benefit plan” and governed by the Employment Retirement Income Security Act (ERISA).  29 U.S.C. §1001 et seq.  ERISA preempts state law, so that a Maryland court is precluded from establishing a constructive trust over a benefit provided by an employer.  29 U.S.C. §1056; Guidry v. Sheet Metal Workers Nat’l Pension Fund, 493 U.S. 365 (1990).  In the words of the Supreme Court, “as a general matter, courts should loath to announce equitable exceptions to legislative requirements or prohibitions that are unqualified by the statutory text.”

The case described actually concerned three life insurance policies: one that part of an employment plan, one that was privately purchased during the first marriage, and one that the husband and second spouse had purchased as mortgage protection when they refinanced their home. The law and the courts followed a different analysis for each one to final resolution.

As with any legal matter facing you our your loved ones, it’s important to speak with an attorney. Our Family Law Practice Group has decades of experience giving advice and representing individuals in both simple and complex domestic cases. If you have a question, or need advice, please contact us.