Divorce has significant implications for life insurance policies, particularly when an ex-spouse is named as the beneficiary. Many individuals assume that a divorce automatically removes the former spouse from the policy, while others may believe the designation remains valid unless actively changed. In reality, the outcome depends on a complex interplay between policy language, state statutes, federal law, and judicial interpretation. As a result, disputes over life insurance benefits following divorce are common and frequently result in litigation.
Automatic Revocation Statutes
Many states have enacted statutes that automatically revoke a former spouse’s beneficiary designation upon divorce. These laws are intended to reflect the presumed intent of the policyholder, who may have forgotten to update the policy or was unaware that the designation remained in effect. In these jurisdictions, the ex-spouse is treated as having predeceased the insured, and the proceeds are typically redirected to contingent beneficiaries or to the estate.
However, these statutes often contain exceptions. For example, if the divorce decree explicitly preserves the beneficiary designation, or if the policyholder reaffirms the designation after divorce, the ex-spouse may still receive the benefits. Additionally, if the policy is governed by federal law, such as the Employee Retirement Income Security Act (ERISA), state revocation statutes may be preempted entirely.
Federal Preemption and ERISA Policies
Life insurance policies provided through employer-sponsored plans are often subject to ERISA. Under federal law, courts are required to follow the plan documents, regardless of state law or equitable considerations. As a result, even if a state statute revokes the ex-spouse’s designation, an ERISA-governed plan may still pay the benefit to the named individual on file.
This principle was confirmed by the United States Supreme Court, which held that ERISA preempts conflicting state laws and requires strict adherence to the beneficiary listed in the plan documents. The only way to change the beneficiary under such a plan is by following the plan’s procedures for making a valid change.
Effect of Divorce Decrees and Settlement Agreements
Divorce judgments and marital settlement agreements may contain provisions requiring one party to maintain life insurance for the benefit of the other or for their children. Failure to comply with these provisions may give rise to claims against the estate, or in some cases, claims against the current beneficiary.
If a policyholder remarries or changes the beneficiary in violation of a court order, litigation may ensue between the designated beneficiary and the person claiming an equitable right to the proceeds. Courts may impose constructive trusts or award damages depending on the jurisdiction and the specific facts of the case.
Disputes and Interpleader Actions
Conflicts over beneficiary designations following divorce often lead to interpleader actions, in which the insurer deposits the policy proceeds with the court and requests judicial resolution. These cases may involve competing claims from a former spouse, a new spouse, children, or the estate. The outcome depends on the policy’s nature, the governing law, and the documentation available to support each party’s claim.
Preventative Measures
To avoid disputes, individuals should review and update all life insurance beneficiary designations immediately after divorce. This includes policies held through employment, private insurers, retirement plans, and any supplemental coverage. Failure to make clear and timely changes can result in unintended consequences, especially where statutory revocation or federal preemption is involved.
Conclusion
Life insurance beneficiary rights after divorce are governed by a complex mixture of state and federal law, contractual obligations, and public policy considerations. Automatic revocation statutes may or may not apply, and federal law may override them entirely. Because of the high potential for conflict and the financial stakes involved, careful attention to beneficiary designations both during and after divorce is essential. To learn more about life insurance beneficiary rules after divorce visit The Lassen Law Firm website.
