In an earlier post, I wrote about how important it is for a divorcing or recently divorced woman to update key documents so they accurately reflect her new status. A major part of that financial housekeeping involves revisiting the named beneficiaries on life insurance policies, retirement plans, annuities, TOD (transfer on death) bank and brokerage accounts, and any other instruments on which a beneficiary is designated.
Naturally, it made good sense to name your husband as beneficiary when the two of you were happily married. But now that you’re divorcing or divorced, it makes even better sense to name someone else instead. So if you haven’t already, now is the time to think about who should receive benefits upon your death –you’ll need to officially designate those persons as beneficiaries on all applicable forms.
But remember, if the divorce proceedings have already started, you will not be able to change any of these designations and will have to wait until the divorce is finalized. You can change designations prior to the filing of divorce, but even then, be aware of the following:
If you and your husband share a financial advisor, that advisor might inform your husband about the change. Also, beneficiary designations on ERISA type of retirement accounts – 401(k)s, 403(b)s, pensions, etc. (not IRAs) -- require the written consent of the other spouse in order to change beneficiaries.
You might be under the impression that you covered those bases already, when you rewrote/revised your will to disinherit your ex-husband. That isn’t so! Let me stress: Beneficiary designations supersede whatever is specified in your will. That means even if you’ve changed your will, he could still inherit certain assets – unless you also specifically changed the beneficiary designations on each one. And let me be clear, once again: Because of elective share rights, you cannot completely disinherit your spouse until the divorce is finalized, and you can’t even partially disinherit him once divorce proceedings have begun.
However, once you’re legally permitted to do so, changing beneficiary designations is not a chore you want to put off, as leaving it undone can be a tremendously expensive mistake. Should you die without naming new beneficiaries, your ex-husband could stand to receive assets you would never in a million years have intended for him to inherit. More importantly, your children, or whomever else you would really want to receive those benefits, could be left out in the cold.
Some states have enacted laws to try to prevent situations like the ones I just described, and they have enacted laws that give life insurance carriers a measure of flexibility regarding whom to pay, and when.
For example, in Florida, a 2012 legislative change gave insurance carriers significant latitude in determining to whom benefits should be paid. An insurer can review the marital status of the deceased, and the relationship between the deceased and their stated beneficiary. If the deceased is listed as single, divorced, or married to someone other than the named beneficiary, the insurer can legally pay benefits to a secondary beneficiary instead.
Missouri has taken a slightly different approach to the problem. The law there now specifies that unless a former spouse is specifically renamed as the beneficiary after divorce, it is assumed there that life insurance benefits should be paid to someone else. (Although, according to this article, this statute does not apply to all policies.)
As you might imagine, issues regarding beneficiaries can be problematic for divorced women. Since ex-wives can be named as beneficiaries and existing life insurance policies can be used to insure payments of alimony and child support, some of these new laws might void your right to collect as an ex-spouse, even though it was intended that the life insurance was for your benefit. For added certainty, make sure you are renamed as beneficiary once the divorce is finalized.
On one hand, new laws concerning beneficiaries can be seen as positive, protective measures. Under some of these new laws, if you neglect to change your named beneficiaries after divorce, your state’s laws might prevent your ex from collecting the proceeds of your life insurance policy. On the other hand, though, it is potentially troubling that the state could have the authority to second-guess your wishes after your death. It’s clearly best to make your wishes explicitly and legally known to all concerned, well in advance.
On top of all of the above, should you (or your estate) become embroiled in a legal battle over beneficiaries that reaches a federal court, there is another factor to consider. The U.S. Supreme Court has ruled that when a conflict exists between federal and state laws in such cases, the federal law prevails. That is, even if an applicable state law says that divorce automatically removes an ex-spouse as beneficiary, federal law could negate that. In fact, court decisions have been made in favor of the named beneficiary even when that person has signed a valid spousal waiver!
The clear take-away from all this: Change each and every one of your beneficiary designations individually, and do it as soon as you can legally do so. Neglecting that paperwork could cost your intended beneficiaries untold time, expense, and legal trouble trying to collect the benefits you wished them to have.
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Jeff Landers is the author of the Amazon best-selling books, Divorce: Think Financially, Not Emotionally – What Women Need To Know About Securing Their Financial Future Before, During, And After Divorce, Volumes I & II, and the forthcoming book,Think Financially, Not Emotionally® - A Woman's Guide To Financial Security After Divorce.
All articles/blog posts are for informational purposes only, and do not constitute legal advice. If you require legal advice, retain a lawyer licensed in your jurisdiction. The opinions expressed are solely those of the author, who is not an attorney.
For further information, please go to our website at: http://www.BedrockDivorce.com or email Jeff at Landers@BedrockDivorce.com.
