Can the Ex-Spouse Collect Life Insurance After Divorce?
Are you facing a life insurance dispute involving an ex-spouse? We routinely handle cases involving payouts of life insurance to ex-spouses. This is a very complex issue and demands the experience of a life insurance beneficiary dispute lawyer. Call us at (800) 323-1857 if you are an ex-spouse trying to collect life insurance proceeds or if you are considering a challenge of a payout to the ex.
The complexity involves a determination of whether federal or state law applies to the dispute. And if state law, the law of which state? The answers may not be as easy they seem.
While the owner of the policy has the contractual right to designate who they want as the named beneficiary, there are state laws restricting when a former spouse can receive the proceeds. When the primary beneficiary is a former spouse, it is extremely important to determine if the policy is regulated by federal law, such as ERISA, FEGLI, SGLI or VGLI. It is important to review the terms of the divorce decree, even if there was a divorce settlement. There may be child support obligations to consider, alimony, and marital rights to the life insurance benefits. Did the insured simply forget to change the beneficiary or did they actually intend to leave the proceeds to their ex-spouse?
Life insurance after divorce: common scenarios
Divorce can significantly impact life insurance policies and beneficiaries. It is essential to understand the potential scenarios where disputes may arise over life insurance proceeds, when the ex-spouse remains the designated beneficiary. Common scenarios include:
Failure to Update Beneficiary Designation After Divorce
Many life insurance disputes arise when the policyholder fails to change the beneficiary designation following their divorce. If the ex-spouse remains the primary beneficiary, they may still be entitled to the insurance proceeds. This could lead to conflicts between the ex-spouse and other potential recipients, such as the policyholder's new spouse, children, or siblings. Many states have enacted laws that do not allow a former spouse to remain a beneficiary and instead pay the secondary beneficiary. The law may treat the ex-wife or ex-husband as disqualified, with the proceeds paid to the estate. But there are exceptions to these laws, including when the owner re-designates after the divorce or there is a new life insurance policy purchased after the divorce. Or the policy may be left to the ex-spouse who remains the custodial parent.
Ambiguity in the Divorce Settlement and Decree
A divorce settlement and decree may address life insurance policies, including the intended beneficiary. However, if the language is unclear or ambiguous, disputes may arise regarding the life insurance proceeds. For instance, if the decree states that the policy may be maintained for child support or alimony purposes but does not explicitly remove the ex-spouse as the beneficiary, this could create conflicts between the ex-spouse and other parties. But at times there may be a very good reason to maintain an insurance policy on your ex-spouse.
Failure to Comply with Court Orders and Divorce Settlement Agreements
In some cases, a court order or divorce settlement agreement may require the policyholder to maintain a life insurance policy with the ex-spouse as the named beneficiary. This is common when the ex-spouse receives alimony or child support payments. The spouse must comply with the court order, unless another policy will suffice. The ex-spouse may file a lawsuit if the owner attempts to cancel the policy. Or if the policyholder fails to comply, disputes may arise between the ex-spouse and other beneficiaries or the policyholder's estate. The life insurance company may refuse to pay until it has been provided a copy of the divorce decree.
Community Property Considerations and Marital Assets
In community property states, life insurance policies purchased during the marriage using marital funds may be considered marital assets. This includes term policies. Consequently, the ex-spouse may have a claim to a portion of the life insurance benefits, even if they are not the named beneficiary. Disputes may arise if the policyholder designates another beneficiary without addressing the community property aspect in the divorce settlement agreement.
Contested Beneficiary Designations and Insurance Attorney Involvement
An ex-spouse may contest the validity of a beneficiary designation change that occurred during or after the divorce. They might argue that the policyholder was under undue influence, lacked mental capacity, or that the change was fraudulent. In these cases, an insurance lawyer may be necessary to resolve disputes over life insurance proceeds.
Waiver of Rights and Insurance Proceeds
An ex-spouse may waive their rights to life insurance proceeds as part of a divorce settlement. If the policyholder does not update the beneficiary designation, disputes may still arise between the ex-spouse and other potential beneficiaries. The waiver may need to be proven to the insurance company or in court to resolve the beneficiary dispute.
In conclusion, life insurance disputes involving ex-spouses can be complex and stem from various scenarios. It is crucial for divorcing parties to carefully consider their life insurance policies during the divorce process, seek legal counsel to understand their rights, and consult with an insurance attorney when necessary. Understanding state and federal laws, including revocation-on-divorce statutes and the Employee Retirement Income Security Act (ERISA), will help ensure proper beneficiary designations and avoid unnecessary conflicts. By addressing life insurance policies as part of the divorce settlement, both parties can safeguard their financial interests and minimize future disputes.
States that restrict an ex-spouse from receiving life insurance
Many states have laws that automatically revoke a former spouse's designation as a life insurance beneficiary after a divorce decree is entered. These states include:
Arizona, California, Colorado, Florida, Georgia, Illinois, Iowa, Kentucky, Massachusetts, Michigan, Minnesota, Missouri, Montana, New Jersey, New York, North Carolina, Ohio, Oregon, Pennsylvania, South Dakota, Texas, Utah, Washington, and Wisconsin.
Keep in mind that the particular laws are written and enforced differently. Most have exceptions. And some states will allow evidence that the deceased actually intended for their ex-spouse to receive the life policy proceeds.
Importantly, federal law typically overrides and supersedes these state laws, particularly for employer-provided life insurance or for federal employees.
Insurance lawyers who protect life insurance beneficiary rights
Our law firm regularly handle cases in which there are competing claims, including interpleader lawsuits. We protect your rights to life insurance proceeds. Everything you need to know won't be found through an internet search. Give us a call at (800) 323-1857
