Life Insurance And Divorce: Who Gets The Payout?

Whether an ex-spouse can claim life insurance money is a complex question that depends on several factors. These include the type of policy, the state where the policy was issued and where the couple lived, and the language in the divorce decree. In some states, the beneficiary listed on the policy will receive the death benefit even if they are no longer married to the insured. In other states, there are automatic revocation laws that remove an ex-spouse as the beneficiary upon divorce. Court-ordered life insurance, where one spouse is required to maintain a policy for a certain period with their ex-spouse listed as the beneficiary, is another factor that can come into play. Ultimately, the specific circumstances of the divorce and the details of the life insurance policy will determine if an ex-spouse can collect life insurance benefits.

If the ex-spouse is the beneficiary

If an ex-spouse is the beneficiary, they will receive the death benefit. This is the case even if the insured remarried and had no relationship with the ex-wife before they died. A life insurance policy is a contract, so the beneficiary gets the proceeds.

In some cases, a court decree might require an ex-spouse to be named as the beneficiary of the life insurance policy. During divorce proceedings, the court may require one spouse to maintain life insurance for a certain amount of time with their ex-spouse listed as the beneficiary. This is called court-ordered life insurance. It doesn't require you to take out a policy on your ex, but it can serve the same function of securing alimony and child support payments if your ex-spouse passes away.

However, if the divorce decree states that each person gives up claims against the other, a beneficiary change is not assumed. To be sure of a change in beneficiary, the life insurance policy benefits must be addressed in the divorce settlement, and one of the spouses waives their right to claims against that asset.

In some states, at the time of a divorce, the beneficiary designations on life insurance policies are automatically revoked. If a new beneficiary is not named, or specific language does not state the ex-spouse will remain the beneficiary, the proceeds are paid to the deceased's estate or to those who would be expected to receive benefits as the remaining primary beneficiaries.

If the divorce decree doesn't address the policy

If the divorce decree does not address the policy, it is important to review the type of life insurance policy and the laws of the state where it was issued and where the couple lived. In some cases, state laws may automatically revoke the ex-spouse as the beneficiary, while federal laws governing certain types of policies can override these state laws.

For example, ERISA (the federal law governing most employer-provided life insurance plans) will typically override state laws, including automatic revocation laws. If the divorce decree contains the necessary information for a Qualified Domestic Relations Order (QDRO) under ERISA, the life insurance proceeds will go to the person named in the decree, not the named beneficiary.

To avoid confusion and potential conflicts, it is recommended that individuals going through a divorce consult with an experienced life insurance attorney to understand their rights and ensure their interests are protected.

Additionally, it is important to note that only the policyholder can make changes to the policy. In some cases, the policyholder may be the same as the insured, but in other cases, they may be different individuals. Therefore, it is crucial for the policyholder to review and update their life insurance policy, especially after major life changes such as divorce.

If the ex-spouse is the owner of the policy

In some states, such as California, which are community property states, the insurance company requires the ex-spouse named as the beneficiary to sign off on the policy to change the beneficiary or attach a copy of the divorce papers to the policy to change the beneficiary legally. If the ex-spouse does not sign off on the policy, the beneficiary cannot be changed.

If the divorce decree does not include the life insurance policy, the insurance company can prevent a change in the beneficiary, leaving the former spouse as the beneficiary. Therefore, it is essential to include all life insurance policies in the divorce settlement.

It is also worth noting that in some cases, a court decree might require an ex-spouse to be named as the beneficiary of the life insurance policy.

If the policy is governed by federal law

In the UK, if a life insurance policy is governed by federal law, it will be subject to the rules and regulations set out by the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA). These authorities operate under the framework established by the Financial Services and Markets Act 2000 (FSMA).

The PRA and FCA have different roles in regulating insurers. The PRA is responsible for authorising and regulating insurers from a standards and policies perspective, while the FCA focuses on regulating the conduct of insurers. The FCA Handbook and PRA Rulebook contain the rules and guidance that insurers must follow.

Insurers in the UK are also influenced by EU insurance directives, which aim to create a harmonised insurance regulation regime across the EU. Despite the UK's exit from the EU, much of this has been retained. However, as a result of Brexit, UK insurers lost their passporting rights to operate in the EU, and EU insurers no longer have passporting rights in the UK. This change has led to a restructuring of how insurance business is conducted across borders.

The UK's unique Lloyd's insurance market is recognised in EU directives and adds complexity to the domestic insurance arrangements and the application of the prudential regime to different participants in the Lloyd's market.

Additionally, the UK has a Senior Managers and Certification Regime (SM&CR) that regulates certain individuals within insurance companies. This regime holds specific individuals accountable for their senior management functions and requires firms to certify the fitness and propriety of employees who pose a risk to the insurer or its customers.

Furthermore, dissatisfied customers can take their complaints to the Financial Ombudsman Service (FOS), which was established under the FSMA and has jurisdiction over claims by micro-enterprises, small and medium-sized enterprises (SMEs), charities, and trustees.

The regulatory requirements for life insurance contracts in the UK include prescribed pre-contractual information, product disclosure, and charges. Life insurers are also no longer allowed to pay commissions for advised sales of investment contracts to retail customers.

Overall, the UK's federal laws and regulations aim to protect consumers, ensure fair practices, and maintain the stability of the insurance industry.

If the ex-spouse can prove insurable interest

If an ex-spouse can prove insurable interest, they may be able to collect the benefits of their former partner's life insurance policy. Insurable interest means that the ex-spouse relies on the deceased financially, for example through child support or alimony payments.

In some cases, a court decree may require an ex-spouse to be named as the beneficiary of the life insurance policy. This is called court-ordered life insurance and is often used to secure alimony and child support payments in the event of the paying parent's death.

It's important to note that the ex-spouse must be listed as the beneficiary on the policy to receive the death benefit. Additionally, the ownership of the policy determines who can change the beneficiary. If the policy is not addressed in the divorce decree, the ex-spouse may be able to collect the benefits if they were the original beneficiary.

To take out a life insurance policy on an ex-spouse, the ex-spouse must agree and sign the application, and the insurable interest must be proven.

Frequently asked questions