States Say, “Not The Ex-Spouse."
The facts of the case are routine. A couple marries. The husband names his wife as beneficiary on his life insurance. They divorce. The divorce decree does not mention the life insurance policy and, years later, the husband dies without ever changing the beneficiary. Under a so-called divorce revocation statute, the former spouse is treated as pre-deceasing the insured. As a result, the contingent beneficiary takes the death proceeds.
About half the states have statutes such as this…and they all contain these exceptions:
- If the divorce decree requires the insured to maintain the coverage for the benefit of the spouse
- If the divorced spouse owns the policy, or
- If the divorced spouse pays the premium on the policy.
These state statutes are relatively new so the courts may not have interpreted the statute yet, which is why there has not been much publicity about their existence.
Here’s what you should do
If you are divorced:
- Revisit all revocable beneficiary designations, as these statutes usually apply to all such designations, not just on life insurance. For example, beneficiary designations of a non-qualified plan may be affected.
- Seek legal counsel to determine the best course. If you are in the process of securing a divorce, this issue should be raised with your divorce lawyer.
Douglas I. Friedman serves life and health insurers as a trusted resource on marketing practices, regulatory compliance requirements, and the development and introduction of new insurance products. His firm acts as national counsel for estate and business.