Don’t Leave Life Insurance To Your Ex-Spouse!

Quote "Not all the people in your life are meant to stay"Ever heard horror stories about accidentally leaving an inheritance to an ex-wife or ex-husband? Here’s how it
happens–

Suppose you have a life insurance policy issued as part of an employee benefit plan that identifies your spouse as your primary beneficiary and your adult child as the contingent beneficiary. Maybe you even have a portion of the policy passing to your dog–this happens, too. 

Years down the road, your marriage ends and you get a divorce.

Your divorce decree provides that your ex-spouse is divested of all right, title and interest in any proceeds from your insurance policies. This solves that problem . . .right?  Nope.

Quick Answer –Why Is This Important To You? 

In layman’s terms, you need to re-name your beneficiaries under your insurance policy after a divorce unless you want your ex-spouse getting that money when you die.

The easiest way to avoid any of this happening is to make sure you review your beneficiary designations regularly and to update your beneficiary designations as your life changes.

  • Get married . . .change the beneficiaries
  • Have kids . . .change the beneficiaries
  • Divorce . . .change beneficiaries

There is case law to support the idea that a lawsuit could be brought against the ex-spouse to enforce the ex-spouse’s waiver of those benefits in the divorce decree; however, that may lead to protracted litigation and significant expense.

What does Texas Law Say?

Under Texas law, a designation in favor of a spouse is not effective after a decree of divorce or annulment is rendered unless the decree designates the ex-spouse as a beneficiary or the owner of the policy re-designates the ex-spouse as the beneficiary after the decree becomes final.

This saves you . . .right?

Maybe not.

State law applies to insurance policies acquired independent of your employment. If you die owning such a policy and you named your spouse as the primary beneficiary and then got divorced, the designation in favor of your ex-spouse would not be effective and the proceeds would pass to the alternate beneficiary.

What Does Federal Law Say?

However, insurance policies issued as part of an employee benefit plan are controlled by the Employee Retirement Income Security Act of 1974 (ERISA). This federal law trumps state law with respect to most employee benefits. Under ERISA, a plan administrator must distribute benefits to a beneficiary named in the plan regardless of the state law divesting the ex-spouse of his or her right to the benefits.

So if you obtained your insurance policy through your employer, your ex-spouse would be entitled to the proceeds.

Call our office for help or questions

We’re glad to visit with you about updating your will to change or add beneficiaries and to advise you on more changes to protect your family’s inheritance.  Give us a call at 817-6389016 to schedule an appointment or email us at Tweaver@WeaverLegal.net.

Travis Weaver, Attorney

Travis Weaver, Attorney