Life Insurance And Divorce: Who Gets The Payout?

Life insurance is often overlooked during divorce proceedings, but it is an important part of the process, especially when children are involved. Generally, life insurance benefits are paid to the named beneficiary, regardless of their relationship with the insured. However, there are instances where an ex-spouse may not be eligible to collect life insurance benefits even if they are the named beneficiary. For example, some states have laws that automatically revoke a person's beneficiary rights upon divorce, while some insurance policies may contain provisions that exclude beneficiaries whose spousal status has ended. It is crucial to review and update life insurance policies after major life changes, such as divorce, to ensure that the desired beneficiaries are in place.

Ex-spouses can collect life insurance if they are the beneficiary listed on the policy

Life insurance policies are often overlooked during divorce proceedings, but they are an important part of the process. In most cases, ex-spouses can collect life insurance if they are the beneficiary listed on the policy. This is because a life insurance policy is a contract, and the beneficiary is entitled to the proceeds. This is true even if the insured party has remarried or has no relationship with the ex-spouse at the time of their death.

However, there are some exceptions to this. For example, the insurance policy may contain a provision that excludes a beneficiary whose spousal status has ended. Additionally, some states have laws that automatically revoke a person's beneficiary rights upon divorce, or the divorce decree may explicitly state that the ex-spouse is no longer eligible to receive life insurance benefits. In community property states, the policyholder must receive the spouse's permission to list anyone else as the beneficiary.

It is important to note that only the policyholder can make changes to the policy. If you are going through a divorce, it is crucial to review your life insurance policy and make any necessary changes to ensure your wishes are carried out.

Divorce does not automatically remove a spouse as a beneficiary

In most cases, the policyholder is the person who pays the premiums and can name anyone they choose as the beneficiary. However, in community property states, the policyholder must get their spouse's permission to list someone else as the beneficiary.

It is important to review your life insurance policies after major life changes such as divorce. If you do not want your ex-spouse to profit from your death, you should change your beneficiary. This can be done by contacting your life insurance agent, who can verify if the policy is revocable and help you to redesignate your beneficiary.

In some cases, an ex-spouse may not be eligible to collect life insurance benefits even if they are the named beneficiary. For example, the insurance policy may contain a provision excluding beneficiaries whose spousal status does not exist at the time of the insured's death. The divorce decree may explicitly state that the ex-spouse is no longer eligible to receive benefits, or the state may have laws that revoke a person's beneficiary rights upon divorce.

Some states revoke a person's beneficiary rights upon divorce

Revocation of Beneficiary Rights Upon Divorce

In the event of a divorce, the beneficiary rights of a former spouse are revoked in some states. This is based on the assumption that the deceased would have wanted to remove their ex-spouse as a beneficiary but forgot to do so.

States with Automatic Revocation Upon Divorce Statutes

• Alaska
• Arizona
• Colorado
• Hawaii
• Idaho
• Minnesota
• Montana
• New Mexico
• North Dakota
• South Dakota
• Utah
• Oklahoma
• Pennsylvania
• Texas
• Virginia
• Washington
• Wisconsin
• Alabama
• California
• Michigan
• Missouri
• New Jersey
• Ohio
• Tennessee
• Nevada
• New Hampshire
• South Carolina
• Kentucky
• Massachusetts
• Nebraska
• New York
• Iowa
• Georgia
• Indiana
• Pennsylvania
• Illinois
• Florida
• North Carolina
• Connecticut
• Mississippi
• Oregon
• Rhode Island
• West Virginia
• Maine
• Maryland
• Delaware
• Vermont
• New Mexico
• Wyoming
• Arkansas
• Louisiana
• Kansas
• South Dakota

Exceptions

The rules are different for 401(k) accounts, pensions, and other federal plans under the laws of the Employee Retirement Income Security Act (ERISA). In these cases, pre-divorce designations remain in place until you change them, no matter which state you live in.

In community property states, the policyholder's spouse is automatically the beneficiary

In community property states, the policyholder's spouse is automatically considered the beneficiary of their life insurance policy. This means that the policyholder must receive the spouse's permission to list anyone else as the beneficiary. These states include Arizona, California, Guam, Idaho, Louisiana, Nevada, New Mexico, Puerto Rico, Texas, Washington, and Wisconsin. Alaska and Tennessee are "opt-in states", meaning spouses can decide to opt in and participate in the state's community property laws.

In these states, both spouses own the money equally earned during the marriage and any property bought with that money. Term insurance policies are also considered community property, and the spouse gets 50% of the death benefit. With permanent life insurance, the proceeds are prorated according to the percentage of premiums paid with "community" money.

If a life insurance policy was purchased with community property income, the surviving spouse may file a life insurance claim for half or a portion of the proceeds if someone other than the spouse is listed as the beneficiary. The beneficiary will receive the rest.

It is important to note that community property laws may not apply if the policyholder obtained their life insurance through work. Group benefit plans are often subject to the Employee Retirement Income Security Act of 1974 (ERISA), which is a federal law that preempts state laws, including community property state laws. In this case, unless the surviving spouse is listed as the beneficiary of the employer-sponsored life insurance policy, they may not be entitled to half of the death benefit.

A divorce decree can override a beneficiary designation in certain cases

A divorce decree can sometimes supersede a previously designated beneficiary on a life insurance policy. The outcome is influenced by state and federal laws governing the policy and whether the policyholder resided in a community property state.

In many states, revocation-upon-divorce laws automatically eliminate an ex-spouse as a beneficiary of a life insurance policy following a divorce. This means that a policyholder must appoint a new beneficiary. If this step is not taken and the policyholder passes away, the death benefits might go to the estate due to the absence of a named beneficiary.

However, certain legal situations may change that. These situations include:

• If the insured was married in a community property state
• If the insured failed to change the beneficiary designation after divorce in a revocation-upon-divorce state
• If the insured changed an irrevocable beneficiary designation
• If the insured named someone other than the beneficiary designated by court order

In addition, a divorce decree may explicitly state that the ex-spouse is no longer eligible to receive life insurance benefits.

Frequently asked questions