Ambiguous Pre-Nuptial Agreement Requires Court to Determine Recipient of Life Insurance Proceeds

The importance of ensuring the intentions of the parties is clearly spelled out in a prenuptial agreement and subsequent estate planning documents cannot be stressed enough. In the following case, the parties spent years fighting over a decedent’s estate because of unclear language. 

The decedent and his wife were married in 1957.  That marriage ended upon the wife’s death in 2007.  In 2008, the decedent married Maxine.  But, before the marriage, the decedent and Maxine executed a pre-marital agreement waiving their individual rights to any separate property or spousal support from the other. As part of the agreement, a disclosure of each person’s assets and liabilities was made. The decedent provided his disclosure in Exhibit A of the agreement. Within the disclosure, he listed a life insurance policy with a case value of $15,000 and a face value of $100,000 “now payable” to “Maxine.”   At the time the decedent completed Exhibit A, he had sent in the change of beneficiary form for the policy, but had not completed it.  His former spouse was the named beneficiary on the policy.

Unfortunately, the decedent failed to properly complete the beneficiary process. He sent the request to the insurance company, but the company sent a letter back indicating it needed additional information before it was able to make the change. It is unknown whether the decedent ever received the letter or knew the beneficiary designation had not been changed. Pursuant to the policy, without a designated beneficiary, the proceeds of the life insurance were to be paid to the decedent’s estate. This created the issue before the court as to who should collect the insurance proceeds.

The decedent revised his will after the death of his first wife, but before his marriage to Maxine. The decedent had no children, and named his former sister-in-law as co-executor. The other co-executor was his brother. Both were the only beneficiaries. The decedent’s farm real estate was devised to the brother, and the remainder of the estate was devised to the sister-in-law. 

Shortly after the decedent’s death and after the co-executors were appointed, the Maxine filed an application for spousal support. The brother co-executor filed an application for directions from the court on whether the life insurance proceeds should be paid to Maxine pursuant to the premarital agreement or remain in the estate. The sister-in-law, who would inherit the proceeds if they remained in the estate, was not agreeable to paying the proceeds to Maxine.

The probate court held a hearing and issued two rulings. The first ruling denied spousal benefits finding that Maxine had sufficient income and assets without the support particularly in light of her waiver of receiving benefits in the premarital agreement. The second ruling determined that the decedent had intended the insurance proceeds to be paid to Maxine. The court determined the statement within Exhibit A was an indication of the decedent’s intention for the Maxine to receive the life insurance proceeds. There were four witnesses who presented testimony that the decedent had intended the proceeds to be paid to Maxine. The court relied on this evidence to interpret the prenuptial agreement and determined the proceeds should be paid to Maxine pursuant to the statement within the prenuptial agreement and evidence of the decedent’s intentions.

The sister-in-law- filed a motion to amend. Maxine filed a motion alleging the sister-in-law’s motion was untimely, and if it was timely, then the court should reconsider granting spousal support payments. The sister-in-law filed a notice of appeal.  The probate court determined the notice of appeal meant the court no longer had jurisdiction to rule on the previous motions.

The appeal went to the Iowa Supreme Court, which held that the motion to amend was timely and made no further ruling. The case was sent back to the probate court to rule on the motion to amend. The probate court reviewed the matter again. It determined the insurance proceeds should still be paid to the Maxine, but the court amended its previous ruling and ordered surviving widow benefits to be paid to Maxine due to the delay in receiving the life insurance proceeds, the receipt of which had been a factor in its previous ruling.

The sister-in-law appealed this decision. On appeal, the Iowa Court of Appeals affirmed the probate court on both rulings. One judge also affirmed the grant of spousal support, but disagreed that Maxine should receive the life insurance proceeds. In his dissent, the judge pointed out that the prenuptial agreement was not ambiguous as determined by the court and that Exhibit A was a list of assets only and was not an intent to provide the insurance to Maxine. The dissent also pointed out that the evidence from the witnesses not contained within the agreement was used improperly by the court to find an ambiguity in the agreement requiring an interpretation and then used the same evidence to interpret ambiguity, which is in conflict with contract interpretation principles. The dissent further opined that the written obligations of the parties, including the premarital agreement, life insurance policy, and will did not show the intent to give the insurance proceeds to widow.

All of the problems in this case could have been avoided if the prenuptial agreement between the parties had clearly stated the insurance proceeds were to be paid to Maxine. Also, simple steps could have been taken to ensure a beneficiary form had been completed correctly before execution of the prenuptial agreement. Further, the will could have been revised to ensure the life insurance proceeds were addressed properly. Unfortunately, because none of these steps were completed, the court had to sort out the issue after the decedent could no longer clearly voice his intent. In re Estate of Thompson, No. 1-948/11-0940, 2012 WL 469985 (Iowa Ct. App. Feb. 15, 2012).