Beneficiary Designation and Divorce (Part Two)

By June 14, 2018 June 18th, 2018 Beneficiary Designations, Divorce, Retirement
life insurance policy beneficiaries following divorce

In our previous post, we discussed the holding this week by the U.S. Supreme Court that the Contracts Clause does not prevent retroactive application of “revocation-on-divorce” statutes – laws that automatically revoke the designation of beneficiary of a former spouse as the recipient of a life insurance policy. These laws rest on the belief that a person would not want a former spouse to claim the proceeds of a life insurance policy upon that person’s death, and if a person would want to do that, the person would have to, post-divorce, redesignate the former spouse to show that intent.

In this post, we explore the impact of that holding on Missouri cases.

While 26 states have “revocation-on-divorce” statutes, Missouri is not one of those states. So, in general, a Missouri resident getting divorced in Missouri will not be directly affected by the ruling.

However, if a married couple lived in Minnesota or one of the other states that do have revocation-on-divorce statutes at the time of their subsequent divorce, that fact alone could mean that even though they reside in Missouri now the law of the other state would control.

But what if a couple does not fall in that situation – what happens?

If husband and wife have lived in Missouri for their marriage and get divorced in Missouri, and during the marriage husband bought a life insurance policy and made wife the beneficiary, if the divorce decree does not address the policy at all, Missouri law would continue to recognize the beneficiary. So, if husband dies two years after the divorce without changing the beneficiary, Missouri likely would recognize the former spouse as the valid beneficiary. Missouri puts the obligation on the policy holder to change a beneficiary; if a person never makes the change, Missouri makes basically the reverse presumption of the Minnesota law – that the policy holder intended the former spouse to remain the beneficiary.

One could challenge this view by remembering that the insurance policy was marital property and therefore subject to division by the court. If the court at divorce did not order the beneficiary remain the same or be changed, it could be considered undivided property that needs to be divided (and here the intent of the policy holder not wanting the former spouse to recover could be proven by evidence) or it could be considered property no longer subject to division because it would improperly redivide the marital estate by giving the policy to someone other than the former spouse.

To avoid ending up in a fight in court over the policy, all persons after divorce should remember to immediately review all beneficiary designations and make sure they reflect present intent – and that should go to redoing any wills and trusts. Also, parties to divorce would be wise to put these issues in a separation agreement to resolve any issues of intent.

If you have questions about beneficiary designations and divorce, contact us – we can help.