Aug 11, 2008

Insurance Proceeds Awarded to Ex-Wife

A California police officer left his new wife in the lurch when he failed to update the beneficiary on his life insurance policy after his divorce. When Officer Jerry Ortiz was killed in the line of duty in 2005, he had been married for only three weeks to his new wife, Graciela. Four months before that, his divorce from his first wife, Gloria, had become final.

Right after the divorce was finalized, Officer Ortiz's attorney sent him a letter reminding him to update the beneficiary designations on any insurance policies. We can only imagine what kept him from doing so -- maybe his pending remarriage, maybe his demanding job, maybe the very common reluctance to think about his own mortality. Whatever the reason, Ortiz never made the change -- and when he died in June of 2005, the designated beneficiary for his life insurance policies, with benefits totaling half a million dollars, was Gloria, his first wife.

The life insurance companies did what insurance companies do in these situations -- they deposited the money with the clerk of the court and filed a lawsuit asking the court to decide who should get the money. The federal court decided that the insurance proceeds were Ortiz's separate property after the divorce, and that he expressed his intention to name Graciela as his beneficiary (to his attorney), and awarded the money to be split between Graciela and Ortiz's two sons. But the Ninth Circuit, a federal appeals court, reversed the decision and held that the divorce judgment did not extinguish Gloria's rights and that because Ortiz did not take any action to change the beneficiaries, Gloria was entitled to the insurance money.

The moral of this story could not be more clear: After your divorce, make absolutely sure you have taken care of the details. That means updating your insurance policies, changing title to your property, making a new will, closing all joint accounts, and following up on anything else you need to do to comply with your settlement agreement or final judgment. Don't wait, or your hard-earned assets could wind up exactly where you don't want them to be.