Parties’ Agreed Life-Insurance Obligations Survive Beyond Death – The Vermont Supreme Court Reconciles Postmortem Maintenance Restrictions with Contractual Autonomy
Commentary on Victoria diMonda v. Lincoln National Corp. d/b/a Lincoln Financial Group, 2025 VT 45

Introduction

The Vermont Supreme Court’s decision in Victoria diMonda v. Lincoln National Corp. (2025 VT 45) addresses an increasingly common post-divorce problem: what happens when the insured ex-spouse, contrary to a divorce stipulation, changes beneficiary designations and dies? At stake were two life-insurance policies—one issued by USAA and a second by Lincoln National—whose combined proceeds were claimed by (i) the first spouse (Victoria diMonda), (ii) the second spouse (Marsha Barrows) and (iii) a business creditor (Vermont 504 Corporation) that held a collateral assignment.

The civil division had ruled against Ms. diMonda, holding that Vermont law forbade courts from securing spousal maintenance through post-mortem life insurance; it therefore declared the insurance clause in the divorce order void. Reversing, the Supreme Court distinguishes between court-imposed security and party-agreed security, holding that when divorcing parties contractually agree—and the family court incorporates that agreement—an ex-spouse may later assert an equitable interest in the proceeds even if the provision functions after the obligor’s death. The Court thus remands for a proper equitable distribution of the proceeds and, by doing so, restates and clarifies significant Vermont doctrines on beneficiary changes, equitable claims, and the limits of family-court power.

Summary of the Judgment

• Equitable Cause of Action Exists. Vermont recognizes an equitable right for a former spouse (or children) to recover insurance proceeds when the insured violates a divorce decree or stipulation governing beneficiary designations. (Travelers’ Ins. Co. v. Gebo; Travelers Ins. Co. v. Blanchard).
• Validity of the Life-Insurance Clause. Although family courts may not impose post-mortem maintenance or require life insurance solely to secure such maintenance (Justis line of cases), parties may voluntarily contract for exactly that; once approved and incorporated, the clause is enforceable.
• Civil Division Reversed. Trial court erred in voiding the clause; its grant of judgment for Lincoln and Barrows is overturned. Only the interpleader relief granted to USAA (allowing deposit of funds with court) is affirmed.
• Remand Directions. Trial court must determine (i) the quantum of Ms. diMonda’s equitable entitlement, (ii) whether either or both policies fall within the clause, (iii) priority among competing claimants, and (iv) any offsets (e.g., maintenance already paid).
• Dissent. A two-judge dissent would have awarded the entire USAA $400,000 to Ms. diMonda outright, leaving no share for the creditor or second spouse.

Analysis

Precedents Cited & Their Influence

1. Travelers’ Ins. Co. v. Gebo (1934) – Recognized that a prior beneficiary may assert an equitable interest in proceeds when equities favour her, despite later beneficiary changes.
2. Travelers Ins. Co. v. Blanchard (1981) – Extended Gebo to divorce-ordered beneficiary designations: children named in a decree prevail over a subsequent volunteer beneficiary.
3. Justis v. Rist (1992) & Progeny (Narwid, Bell, Clapp, Theise) – Bar family courts from ordering post-mortem maintenance or indirectly achieving it via mandatory insurance. BUT they expressly allow parties to agree otherwise.
4. Quesnel v. Quesnel (1988) – Authorised courts to order an existing policy be maintained for a spouse under §762.
5. Contract/Stipulation Cases – Strope, Pouech, Meier, West – Emphasise deference to negotiated property settlements and the contractual nature of incorporated stipulations.

The Court synthesised these strands, concluding that the family division’s lack of statutory power to impose post-mortem security does not disable parties from gifting each other that security. Therefore the insurance clause—being contractual—remains valid absent grounds to void the judgment itself (fraud, duress, etc.).

Legal Reasoning

1. Existence of Equitable Remedy. Building on Gebo and Blanchard, the Court holds that Ms. diMonda can sue in equity to impose a constructive trust over proceeds wrongfully diverted from her.
2. Distinguishing Court-Imposed vs. Party-Agreed Obligations. The Court rereads the Justis line: those cases invalidated provisions imposed by the court to guarantee maintenance after death of obligor. Here, the provision was bargained for and thus permissible.
3. Purpose of the Clause. Textual analysis: 15-year minimum / “whichever is later” shows broader family-support purposes (e.g., children’s upbringing) beyond mere maintenance security, undercutting the lower court’s conclusion.
4. Contractual Autonomy in Divorce. The Court emphasises Vermont’s strong policy of enforcing divorce stipulations unless traditional Rule 60 grounds are shown.
5. Remand for Equitable Balancing. Because competing claimants might have partial equities (e.g., secured creditor), the trial court must determine priorities and scope of each party’s interest.

Impact – Why This Case Matters

• Clarifies Post-Divorce Drafting. Lawyers can safely include life-insurance obligations—even extending beyond death—if based on mutual agreement.
• Guides Family Courts. Courts must distinguish between imposed security (usually impermissible) and agreed-to security (enforceable), avoiding automatic invalidation.
• Strengthens Equitable Remedies. Reinforces constructive-trust principles protecting ex-spouses or children from unilateral beneficiary changes.
• Implications for Creditors & Subsequent Spouses. Collateral assignees and new beneficiaries now know their interests are subordinate to earlier equitable claims rooted in a valid divorce stipulation.
• Dissent’s Warning. The two-judge dissent signals that, on remand, trial courts may award full proceeds to the stipulated beneficiary, narrowing room for creditor recovery—future litigants should structure loan security with explicit acknowledgements of prior divorce obligations.

Complex Concepts Simplified

• Postmortem Spousal Maintenance: Court-ordered maintenance that continues after the payor’s death. Vermont generally bars courts from ordering it (Justis), but parties may privately agree.
• Equitable Interest / Constructive Trust: A fairness-based right allowing courts to treat property as if it belongs to someone other than the titled owner when equity demands it.
• Interpleader: Procedure allowing a stakeholder (USAA) facing competing claims to deposit funds with the court and be dismissed, leaving claimants to fight it out.
• Summary Judgment vs. Judgment on the Pleadings: Summary judgment considers evidence beyond pleadings when no material fact is disputed; judgment on pleadings tests legal sufficiency of the pleadings themselves.
• Collateral Assignment: Transfer of an insurance policy’s proceeds (to the extent of a debt) to secure a loan—here, Vermont 504’s $250k security interest.

Conclusion

diMonda v. Lincoln National Corp. realigns Vermont family-law doctrine with contractual freedom, confirming that:

1. A divorcing couple can voluntarily craft life-insurance obligations that persist beyond the obligor’s death, notwithstanding Justis restrictions on court-imposed maintenance.
2. When an insured spouse later violates such an obligation, the jilted beneficiary may invoke equitable principles to reclaim proceeds from later-named beneficiaries or creditors with inferior equities.
3. Family courts and practitioners must carefully parse the source of an insurance requirement—whether imposed or agreed—to determine validity.
4. The ruling strengthens Vermont’s commitment to enforcing negotiated divorce settlements, thereby promoting certainty, autonomy, and fairness in post-dissolution financial arrangements.

On remand, the civil division must deploy these principles to decide priority and scope of each claim—work that will likely refine Vermont’s equitable jurisprudence even further. Whatever the ultimate allocation, the Supreme Court has now charted a clear path for future cases involving life-insurance provisions in divorce decrees, balancing statutory limits with contractual freedom and equitable justice.