Ex-Spouse Still Listed as the Life Insurance Beneficiary? What Happens Now

Divorce changes many financial relationships, but life insurance beneficiary forms are easy to overlook.

When the insured dies without updating the policy, surviving family members may discover that an ex-husband or ex-wife is still listed to receive the insurance money. What happens next can depend on state law, the type of life insurance policy, the divorce decree and accompanying marital property settlement agreement, and whether the coverage came through an employer.

If an ex-spouse is still the beneficiary on life insurance after divorce, the designation should not be evaluated in isolation. Several different legal rules may potentially affect who ultimately receives the proceeds.

Does Divorce Automatically Remove an Ex-Spouse as Beneficiary?

In some states, divorce can automatically revoke a former spouse's designation as beneficiary on certain assets, including life insurance.

These laws are sometimes called revocation-on-divorce statutes. They can treat the former spouse as though they were no longer named as beneficiary after the divorce, allowing the proceeds to pass to a contingent beneficiary, the insured’s estate, or another person entitled under the policy.

But state laws differ, and exceptions can apply. The policyholder may have redesignated the ex-spouse after divorce, for example, showing an intention to keep that person as beneficiary through the divorce. A divorce agreement or marital property settlement agreement may also require the designation to remain in place.

The type of insurance is equally important because federal law can change the analysis.

Employer Life Insurance Can Be Different

Life insurance provided through a private employer is often part of an employee benefit plan governed by ERISA.

Federal law can preempt state rules that would otherwise automatically remove an ex-spouse from an employer-sponsored plan.

The U.S. Supreme Court has addressed this conflict, holding that ERISA can require plan administrators to follow plan documents rather than a state law automatically revoking a former spouse's beneficiary status after divorce.

As a practical result, an ex-spouse who might lose beneficiary status under state law on an individual policy could potentially remain entitled to benefits from certain employer-sponsored coverage if that person remains the beneficiary named in the plan records.

Families should therefore determine where the coverage came from before assuming that a divorce automatically resolved the beneficiary issue.

What if the Divorce Decree Required Life Insurance?

Life insurance is sometimes addressed directly in divorce settlements sometimes referred to as marital property settlement agreements.

One spouse may agree or be ordered to maintain a specific amount of coverage for the benefit of an ex-spouse or children. The requirement may last until child support ends, alimony obligations are satisfied, or another event occurs.

Problems arise when the insured later changes the beneficiary contrary to that obligation.

For example, a divorce decree might require $250,000 of coverage for minor children, but the insured later names a new spouse as the sole beneficiary.

Whether the original intended beneficiaries can recover the proceeds may depend on the language of the divorce order, the type of policy, federal law, and the remedies available under state law.

A beneficiary designation form should therefore be reviewed alongside the divorce judgment rather than separately.

What if the Divorce Agreement Says the Ex-Spouse Waived the Benefits?

A waiver can make the dispute even more complicated. An ex-spouse may have signed a divorce settlement saying that each person relinquishes rights to the other's property or insurance benefits. Yet the insured may have failed to change the beneficiary designation afterward.

With an individual life insurance policy, state law may determine the effect of that waiver.

With an ERISA-governed plan, administrators generally look to plan documents when deciding whom to pay. That can create a situation where the insurer or plan administrator pays the person listed in its records even though other parties argue that the former spouse gave up the money during the divorce.

Potential claims after payment may raise separate legal questions.

Why Would the Insurance Company File an Interpleader?

When two or more people make competing claims to the same life insurance proceeds, the insurance company may decide not to choose between them.

Instead, it may file a court action commonly called an “interpleader”. In an interpleader action, the insurance company deposits the disputed proceeds with the court and asks a judge to determine the rightful beneficiary. The competing claimants then present their arguments to the court.

An interpleader does not necessarily mean the insurance company believes one claimant is stronger than another. It generally means the insurer believes paying either side directly could expose it to another claim for the same money.

Beneficiaries served with court papers should take the proceeding seriously. Deadlines apply, and failing to participate can affect the ability to claim the proceeds.

Evidence That Can Matter in a Beneficiary Dispute

The policy's beneficiary designation is only one document that may be relevant.

The parties may also need the divorce decree, marital settlement agreement, later beneficiary forms, plan documents, correspondence with the insurance company, estate-planning documents, and records showing when any changes were submitted.

For employer-sponsored insurance, identifying whether ERISA governs the plan can be critical.

Beneficiary disputes can also involve allegations that a designation was forged, improperly changed, made while the insured lacked capacity, or obtained through undue influence. Those issues can create additional claims beyond the effects of divorce itself.

Frequently Asked Questions

My ex-wife is still beneficiary on my life insurance. Does she automatically get the money?

The result depends on the type of policy and applicable law. Some states have revocation-on-divorce laws that automatically remove a former spouse from certain beneficiary designations unless an exception applies.

Employer-sponsored life insurance can operate differently. When a plan is governed by ERISA, federal law may require the plan administrator to follow the beneficiary designation contained in the plan records even though state law would otherwise revoke the designation after divorce.

A divorce decree and marital property settlement agreement can add another layer. The former spouse may have waived rights to the insurance, or the insured may have been specifically required to maintain the ex-spouse as beneficiary.

Because several different legal rules can point in different directions, beneficiaries should avoid assuming that the most recent relationship status determines who receives the money. The policy, plan documents, beneficiary form, and divorce records should all be reviewed together.

Can a divorce decree require someone to keep an ex-spouse as a life insurance beneficiary?

Life insurance is often used during divorce to secure financial obligations such as alimony, child support, or another settlement obligation. A divorce decree or settlement agreement may require one spouse to maintain a specified amount of insurance and name an ex-spouse, children, or a trust as beneficiary.

A dispute can arise if the insured violates that agreement before death.

For example, the insured might cancel the required policy, reduce the coverage, or replace the designated beneficiary with a new spouse.

The legal remedy will depend on the policy, wording of the divorce order, governing law, and whether the coverage is part of an ERISA plan. In some cases, the person named on the policy and the person claiming rights under the divorce decree may be different people.

Morgan & Morgan’s Life Insurance Attorneys can review both the insurance and family-law documents to determine how those competing rights interact.

What happens when two people claim the same life insurance money?

The insurance company may delay payment while it investigates the competing claims. If it cannot safely determine who is legally entitled to the proceeds, it may file an interpleader action.

In an interpleader, the insurer generally asks a court to take control of the disputed money and decide who should receive it. The claimants then litigate their competing rights.

For example, an ex-spouse may point to a beneficiary designation while the insured's children argue the divorce revoked the prior designation. A current spouse may rely on a later designation while an ex-spouse relies on a divorce decree requiring coverage.

These cases can involve substantial sums and complicated entanglements between contract law, state insurance law, federal employee-benefit law, and family-law.

Anyone who receives notice of an interpleader or competing beneficiary claim should consider obtaining legal advice promptly so that deadlines and potential arguments are not missed.

Can an insurance company simply decide which beneficiary is right?

While an insurer can sometimes resolve the issue from its records, interpleader is often sought when the insurer is confronted with competing claims with no straightforward answer.

If the insurer pays one claimant and another person later proves they were legally entitled to the proceeds, the insurer could potentially face additional litigation. Interpleader gives the company a way to place the disputed money before a court instead.

That does not mean every beneficiary dispute belongs in court. Some disagreements can be resolved by reviewing beneficiary forms, divorce records, plan documents, or other evidence.

Employer-sponsored policies require particular care because federal ERISA rules may affect how the plan administrator must treat a beneficiary designation.

If you are involved in a dispute involving an ex-spouse, divorce decree, competing beneficiary, or employer life insurance plan, contact Morgan & Morgan for a free case evaluation.