Delores Aderholt v. Sandra R. Aderholt McDonald: The general rule in Alabama is that the named beneficiary of a life insurance is entitled to the proceeds from the policy, and the general rule is not usually interrupted by divorce and has only two exceptions.

The Facts of the Matter

In 1993, Alfa Life Insurance Corporation issued a $150,000.00 life insurance policy to Bobby Aderholt. The policy provided that upon Bobby’s death, the beneficiary would be the person named in the application. Bobby wrote in the name of his then-wife Sandra as the sole beneficiary. Bobby and Sandra divorced in 2004. The relevant portion of the divorce decree reads as follows:

“Each party shall retain ownership of their own life insurance policies. [Sandra] shall remain as the sole beneficiary on [Bobby’s] whole-life insurance policy through Alfa which has a death benefit of $150,000.00. He shall maintain this insurance and maintain her as the beneficiary for a period of fifteen (15) years.”

At the time of Bobby’s death in 2014, both he and Sandra had complied with all aspects of the divorce judgment. Following Bobby’s death, both Delores Aderholt (Bobby’s mother and the administrator of his estate) and Sandra made claims on the life insurance proceeds. Alfa initiated an interpleader action in the Circuit Court of Walker County in which the court allowed Alfa to deposit the $154,109.00 with the court for the court to determine the proper beneficiary.

Sandra moved the court to enter summary judgment in her favor because she was the named beneficiary on the policy and the divorce judgment required Bobby to keep her as the beneficiary until 2019. Delores argued that Sandra was entitled to a portion of the proceeds that at most equaled the remaining unpaid alimony, which would have totaled $28,500.00. The circuit court granted Sandra’s motion for summary judgment. Delores appealed. Delores Aderholt v. Sandra R. Aderholt McDonald [Ms. 1150878, Dec. 16, 2016],  — So.3d — (Ala. 2016).

Applying the Law to the Facts

Under Alabama law, “the designation of the beneficiary of a life insurance policy is governed by the provisions of the policy itself.” Gibson v. Henderson, 459 So.2d 845, 847 (Ala. 1984). The subject policy provides that the beneficiary is the individual designated on the application, and there is no dispute that Sandra is the designated beneficiary. There is no evidence that Bobby ever attempted to remove Sandra as the beneficiary. Additionally, a divorce alone has no impact on a former spouse’s status as the beneficiary of the other’s life insurance policy. See Flowers v. Flowers, 224 So.3d 590 (Ala. 1969); see also Kowalski v. Upchurch, 186 So.3d 460 (Ala.Civ.App. 2015). Alabama courts have derived this principle from the fact that any rights a beneficiary has to proceeds of a life insurance policy are not marital, but contractual. See Rountree v. Frazee, 209 So.2d 424 (Ala. 1968).

There are two exceptions to the above-stated general rule that a named beneficiary is entitled to the proceeds of the life insurance policy. Delores argued these exceptions: (1) when the decedent has failed to comply with a court order regarding the designation of a beneficiary, and (2) when the decedent has completed all the required steps to change the beneficiary but the insurer nevertheless fails to make the change. The Alabama Supreme Court found that neither exception applied to the case at hand, who likewise found none of Delores’s arguments to be compelling and affirmed the summary judgment entered by the trial court.

For more on life insurance coverage, read “Timing an Insurable Interest in a Life Insurance Policy”

Photo by Billie Grace Ward.