Ex Spouse Gets Divorced Spouses Life Insurance

Posted on November 24, 2022

While an Illinois law doesn’t allow a divorced spouse to claim life insurance payouts under their ex-spouse’s policy, that law doesn’t apply to divorces finalized before the law took effect three years ago, a state appeals panel has ruled. In 2018, Illinois lawmakers amended the Illinois Marriage and Dissolution of Marriage Act to stipulate a divorce agreement negates any existing life insurance policy beneficiary designation, unless the divorce judgment expressly includes that condition; if the insured party formally redesignates their ex-spouse as a beneficiary; or if the former spouse is the recipient of funds in trust for a dependent of the decedent.

That law took effect Jan. 1, 2019.

The reach of the law was called into question in a lawsuit pitting plaintiff Beverly Shaw against her ex-husband’s son over who should be entitled to the proceeds of a life insurance payout. According to court documents, Beverly Shaw divorced Tyrone Shaw in March 2016 in Cook County Circuit Court. The couple had married in 1991. When Tyrone died in 2020, Beverly sought to collect as the beneficiary of his U.S. Financial Life Insurance Company’s policy.

The company declined the payout, prompting Beverly to sue the company and Tyrone’s three adult children, Terrance Shaw, Michelle Shaw McKay and Phillip Shaw, who were the named contingent beneficiaries. Beverly Shaw is Phlilip Shaw’s mother. Cook Couty Judge Anna Loftus granted summary judgment in Beverly’s favor, a decision Terrance challenged before the Illinois First District Appellate Court.

Justice Jesse Reyes wrote the panel’s opinion, issued Nov. 16; Justices Robert Gordon and Eileen Burke concurred. During Cook County proceedings, U.S. Financial successfully asked to be discharged from liability by depositing the challenged funds for disbursal pending resolution. Michelle Shaw McKay and Phillip Shaw didn’t file appearances, leading Judge Loftus to enter default findings. Terrance Shaw challenged Beverly’s claims/ McKay later rejoined the action.

Loftus issued her ruling Aug. 10, 2021, holding “the statute at issue was a substantive, not procedural, one, meaning that it had only prospective effect and could not be applied retroactively,” Reyes said. He added: “The operative date for purposes of application of the statute was the date of the dissolution judgment, not the date of the insured’s death, meaning that the statute would not apply here.”

That opinion also characterized Terrance Shaw’s affirmative defenses as “woefully underpled,” and after Loftus later denied a motion to reconsider, his appeal focused only on the issue of whether the state legislature’s action applied to divorces that had already been finalized. Reyes explained that before the 2018 amendment, the only state law governing how divorce may affect such life insurance payouts was the Probate Act of 1975, which “provided that a dissolution judgment automatically operated to revoke an ex-spouse’s status in a will.”

The panel further noted “the amendment was not the subject of extensive debate in the Legislature” and said the issue in the Shaw litigation is whether the a divorce should be considered the “operative act” triggering how a judge should apply the law, or whether it should be the death, which happened after the law was enacted. The panel quoted former state Rep. Chuck Weaver, R-Peoria, who said the idea was to ensure “a person going through a divorce isn’t penalized for forgetting about an old insurance policy stuck in a drawer and thereby reduces litigation and clarifies who should be the beneficiary.”

Reyes said Beverly rooted her arguments in Illinois cases concerning wills, while Terrance’s positions came from litigation in other states regarding life insurance policies. In siding with Beverly, the panel explained the 2018 amendment was written in the present tense and included in a section governing property at the time of a divorce, suggesting “it was intended to apply in the context of dissolution proceedings, not at some later time.”

The panel further said the Illinois Supreme Court “has repeatedly rejected” arguments a beneficiary’s interest vests only upon death and observed the General Assembly could’ve included Uniform Probate Code language regarding this question, as other states have done, but a failure to do so supports Beverly’s position.

“The date of the dissolution judgment preceded the effective date of the statute,” Reyes wrote. “The statute does not apply.” Beverly Shaw was represented in the matter by attorney Berton N. Ring, of Chicago. Attorneys Richard Lee Stavins and Riccardo A. DiMonte, of Robbins DiMonte, of Chicago, represented Terrance Shaw.