Questions about ex-spouses’ rights to the life insurance policy of their deceased former spouses come up very frequently in our practice. This area of law can be quite confusing to many people because there is no universal rule on who receives life insurance post-divorce. Such factors as the type of policy, the state where the policy was issued, and where the couple lived, and the divorce decree will come into play when it is time to pay the life insurance benefit.
Can a Divorce Decree Override a Named Beneficiary?
Yes and no. A divorce decree can override a beneficiary designation in a life insurance policy only in cases where the divorce decree (usually a state court order) is not preempted by laws controlling the life insurance policy itself. Certain federal laws governing federal life insurance policies can trump conflicting state law documents, including divorce decrees.
For example, if an insured had an SGLI policy (Servicemembers’ Group Life Insurance controlled by such federal law) and named his parents as beneficiaries, the parents will receive the benefit even if there exists a state court divorce decree obligating the insured to keep his ex-wife as the beneficiary on his SGLI policy. The SGLI beneficiary designation for the benefit of parents, in this case, will trump the conflicting divorce decree stating the former spouse should be the recipient.
Similar problems may arise with FEGLI (Federal Employees Group Life Insurance) policies.
ERISA policies, which control most employer-provided life insurance plans, operate differently. If a divorce decree contains all the information required for a qualified domestic relations order (QDRO) under ERISA, a deceased employee’s life insurance proceeds will go to the person named in the divorce decree rather than his named beneficiary.
ERISA was amended in 1984 to provide greater protection for spouses and dependents after a divorce. One of such protections was an exception to the general preemption rule for qualified domestic relations orders (QDRO). QDRO is a state order/divorce decree relating to child support, marital property rights, or alimony. To be valid, it must meet several requirements. It is important to consult a life insurance attorney while you are going through a divorce to avoid conflicts later. Recovering the life insurance benefit after it’s been given to the wrong party may be challenging and could result in a lengthy litigation.
Can an Ex-spouse Collect Life Insurance Money Even If the Deceased Remarried?
It is not uncommon for divorced individuals to forget to update their beneficiary designations on life insurance policies naming their ex-spouses as primary beneficiaries. To avoid situations where ex-spouses incidentally benefit from policies of their deceased former spouses, many states have enacted laws that automatically revoke the ex-spouse as the beneficiary on the life insurance policy following divorce. These laws were designed to prevent conflict among families and limit litigation over disputed policies.
The revocation upon-divorce statute means that if a divorced policyholder never updated his beneficiary by contacting the insurance company and following its procedure for changing a beneficiary, the ex-spouse will not be able to get the benefits after the policy owner’s death. Thus, even if you forget to update your life insurance policy upon divorce, your ex-spouse may still get revoked under state laws. There are two potential problems with such laws.
First, if the ex-spouse is automatically revoked as the beneficiary, it does not mean that the person the insured would make the beneficiary will actually receive the money. Sometimes, the insurer will pay to the secondary beneficiary (if there is one) or to the estate of the insured. Sometimes, the insurance company will follow a table of precedence in its own policy to name the individual who is the next in line to receive the payout. The second problem with reliance on such laws is that they do not control all life insurance claims. Many life insurance claims are governed by federal laws that trump state laws.
Even though such statutes have been enacted to protect insureds’ wishes, they do not guarantee that your particular claim will fall under the laws. There are exceptions to these laws, such as when there is an agreement between former spouses to keep the current beneficiary designation, there is a divorce decree naming the former spouse or the insured restored his or her former spouse as a beneficiary. In states that have not adopted revocation-on-divorce statutes the ex-spouse who remains on the policy may have a valid claim for benefits after the insured’s death.
If the insured created a will or a trust after a divorce and included his life insurance policy in them, but failed to update a beneficiary on his policy, the existing beneficiary may have a valid claim for life insurance money after the insured’s death. The situation may be even more complex if a life insurance policy is a group policy and is governed by federal laws. To avoid potential problems and confusion, we recommend everyone going through a major life change like a divorce to consult with an experienced life insurance attorney who will help them sort through the intricacies of life insurance laws and protect their rights.
Which States Have Laws That Revoke a Person’s Beneficiary Rights Upon Divorce?
- New Jersey
- New Mexico
- New York
- North Dakota
- South Carolina
- South Dakota
How We Helped an Ex-spouse Recover Life Insurance Benefits
Our client was the sole primary beneficiary on his ex-wife’s individual life insurance policy. When he learned of his wife’s passing and filed a claim for life insurance benefits, the insurance company informed him that his claim could not be paid because a competing claim for benefits had been filed by the ex-wife’s daughter.
The daughter’s claim was based on the fact that after the divorce the insured created a trust and included her life insurance policy in the trust’s assets. The insured also created a will and designated the trust as the only recipient of her assets, including the life insurance policy on her life. The insured then named her daughter as the trustee. However, the insured never contacted the insurance company requesting a beneficiary change. She never changed the beneficiary.
Before he retained our law firm to represent him in the ensuing interpleader, our client had unsuccessfully attempted to negotiate a settlement with the insured’s daughter for several months. The insurance company gave both parties a chance to agree on a settlement and when a settlement could not be reached, it filed an interpleader (a court action). Our firm took over the case and entered into negotiations with the daughter’s attorneys.
We were proud to have been able to reach a result satisfactory to our client. He received the benefits due to him under the policy and avoided costly and lengthy litigation. Our life insurance attorneys worked diligently to protect our client’s rights to life insurance benefits.
Why You Need a Life Insurance Lawyer When You Contemplate a Divorce
Throughout years of practicing life insurance law, I noticed that many divorcing couples do not include their life insurance policies in the divorce decree or a property settlement agreement. Many clients tell us they were unaware of the need to do so, as they did not know about the revocation-on-divorce laws. Others think that changing a will is sufficient.
Divorcing parties need to update their beneficiaries by contacting the insurance company and following its procedure for beneficiary change. If they wish for their ex-spouse to remain a beneficiary on their policies, they should re-designate them after the divorce to make sure their pre-divorce designation is not automatically canceled.
If you are not sure about your life insurance beneficiary rights as an ex-spouse or if you have questions about your life insurance due to an upcoming divorce, please consult with an experienced life insurance lawyer at our firm.
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