Get your financial ducks in order

Case Closed

Robert C. Port  |  Mar 8, 2023

EVERYTHING I KNOW about managing money I learned in court. As part of my legal practice, I represent people involved in disputes over money or property. These can include claims against financial advisors for alleged misconduct, contested wills and trust disputes, and family members at odds over a family business.

These disputes can teach us important personal finance lessons. Here are four lessons—learned the hard way—from four cases my firm handled. All are based on an actual case, though names and details are changed to protect the litigants’ privacy.

Case No. 1: Life insurance goes to the ex-spouse. Jane and John’s divorce was bitter. Even after their divorce was final, Jane had to go back to court asking that John be held in contempt for failing to pay child support. Imagine, then, Jane’s surprise when 15 years later she received a letter from a life insurance company expressing its condolences on John’s death—and enclosing the forms necessary to claim his $1 million policy.

Jane was listed as the beneficiary of John’s life insurance policy, which the insurance company was obligated to follow under state law. John’s widow promptly sued to try to prevent Jane from getting the payment. Still, the court awarded the $1 million policy proceeds to Jane, along with a small bank account, for which Jane was also listed as a joint owner at John’s death.

Lesson learned: If you’re contemplating divorce, identify all financial assets which have a survivorship or beneficiary designation. These can include life insurance, and bank, brokerage, and retirement accounts. Discuss with your divorce attorney how they should be addressed.

In some states, a divorce automatically prevents an ex-spouse from being the beneficiary of a life insurance policy or receiving the financial accounts of an ex-spouse. In others states, however, the divorce decree must specifically disclaim all future rights. If it doesn’t, the law treats written beneficiary directives that are in effect at death as the deceased’s final wishes for where assets should go—even if it’s to the ex-spouse.

Read the rest of this story with more examples of how people get into financial trouble.

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