Does Your Insurance Policy Name Your Ex-Spouse As a Beneficiary?

Suppose you have a life insurance policy issued as part of an employee benefit plan which identifies your spouse as your primary beneficiary and your adult daughter as the contingent beneficiary.

Years down the road, your marriage falls apart 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.

Additionally, under Texas statutes, a designation of a 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 redesignates the ex-spouse as the beneficiary after the decree is becomes final.

Based on that, you might assume that the proceeds of the policy would automatically pass to your daughter rather than your ex-spouse, even if you don’t change your beneficiary designation. Right?

Maybe not.

State law applies to insurance policies acquired independent of your employment. If you die owning such a policy, named 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.

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

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.

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.