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Birmingham Bar Association Bulletin | Spring 2015

Divorce Law 252 and its exclusion of a divorced spouse from the definition of “surviving spouse,” could be interpreted as excluding the grantor’s spouse following a divorce. Some courts in other jurisdictions have used statutory construction as a basis for prohibiting a divorced spouse from taking under an inter vivos trust in the absence of a “kick-out clause.” For example, in Miller v. First Nat’l Bank & Trust Co.2, the Oklahoma court held that the statutory revocation of a Will also applied to an unfunded life insurance trust. The decedent’s Will devised the residue of his estate to the revocable trust, and the Miller court seized upon the “pourover” clause as a basis for holding that the subsequent divorce not only revoked the Will, but the inter vivos trust as well. Alabama has not taken this approach or spoken definitively about this issue yet. Therefore, it is crucial for the practitioner to understand that there is no express statutory equivalent to Ala. Code § 43-8- 137 in the Alabama Uniform Trust Code; and no reported cases holding that a divorce automatically revokes an ex-spouse’s interest in a living trust. Accordingly, unless the instrument contains a “kick-out clause,” or the divorced spouse’s interest is judicially terminated by the domestic court, the grantor’s ex-spouse may nevertheless qualify as a trustee and beneficiary of an inter vivos trust after the marriage has been terminated. Life Insurance Policies The Alabama Supreme Court addressed the issue of whether a former spouse is entitled to life insurance proceeds following a divorce in Flowers v. Flowers.3 In Flowers, the husband was provided with a life insurance policy by his employer. He named “Evelyn Flowers, Wife” as his designated beneficiary. Although the policy granted the husband the right to change the beneficiary at any time, he never did so prior to his death. The parties thereafter entered into a comprehensive property settlement agreement which made no reference to either the policy or its proceeds. When the parties later divorced, the property settlement agreement was incorporated into a divorce decree. Following Mr. Flowers’ death, his former spouse claimed the insurance proceeds as the named beneficiary; and the decedent’s administrators claimed the benefits on behalf of his estate. The Alabama Supreme Court held that, at the time of the property settlement, Evelyn Flowers as the designated beneficiary “had a mere expectancy in the policy and no vested right or interest therein, since the policy authorized a change of beneficiary at the will of the insured.” Observing that the property settlement agreement made no mention of the policy or its proceeds, the court concluded “that the said agreement and property settlement should not be construed as showing that Evelyn Flowers, by executing the said agreement and property settlement, released the mere expectancy of her surviving her then husband and receiving the proceeds of the certificate of insurance, if kept in force.” Accordingly, the ex-wife was awarded the insurance benefits. Pension Benefits In Pitts v. Vaughn,4 the Alabama Court of Civil Appeals followed the reasoning of the Flowers court to determine that a divorce decree does not affect a former spouse’s right to death benefits under a retirement plan if the former spouse was still listed as a designated beneficiary. In Pitts, the divorce settlement agreement contained broad general language regarding the waiver of present and future rights, but did not specifically mention the pension plan benefits which were the subject of the dispute. The settlement provisions in Pitts were similar to the settlement provisions in Flowers, where a former spouse’s right to an insurance policy was at issue. Due to the similarities between insurance and pension benefits, the court did not find a reason to apply differing rules in Pitts and Flowers. Thus, an ex-spouse is entitled to death benefits of a retirement plan if he or she is still listed as the designated beneficiary at the decedent’s death and the divorce decree does not specifically address the retirement plan. Individual Retirement Accounts (IRA’s) Like life insurance and pension plans, IRA’s generally pass at death to a designated beneficiary. In Walden v. Walden,5 the husband owned an IRA and designated his wife as the beneficiary. At their subsequent divorce, the final judgment directed that the husband “is vested with his IRA.” The husband died without having revoked the designation of his former spouse as the beneficiary. Unlike Pitts, the divorce decree did not incorporate an agreement between the parties. The Alabama Court of Civil Appeals stated the issue as “whether a divorce judg- Birmingham Bar Bulletin/ Spring 2015 17


Birmingham Bar Association Bulletin | Spring 2015
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