Failure to Change Beneficiary Designations Following Divorce
Following a divorce, it is important to change your beneficiary designations on your benefits, especially life insurance beneficiary designations. Unless the Decree of Divorce requires you to carry a life insurance policy so that your child support will continue to be paid in the event of your death, you likely do not want your ex-spouse to continue to receive any or all of your benefits if you die.
Because many people forget to change their beneficiary designations following a divorce, Texas has adopted a law to address the situation. Texas Family Code §9.301 specifically deals with the situation where a pre-divorce designation of an ex-spouse as a beneficiary of life insurance benefits has been made.
Under that statute, a pre-divorce designation of a former spouse is not effective UNLESS:
- The Decree of Divorce specifically requires the insured to continue to list the ex-spouse as the beneficiary of the policy after the divorce is final; or
- The insured goes to his/her human resources group or the insurance company and re-designates the former spouse as the beneficiary after the divorce has been finalized; or
- The former spouse is designated to receive the proceeds in trust for, on behalf of, or for the benefit of a child or a dependent of either former spouse. (So, the beneficiary listed would appear on the policy as, “Mary Jones, on behalf of my minor children, Bobby Jones and Suzy Jones.”)
If the designation of the beneficiary does not meet any of the three preceding criteria, then the proceeds of the policy cannot be paid to the ex-spouse. Instead, the proceeds should be paid to the alternative beneficiary. If no alternative beneficiary is named, then the proceeds will be paid into the estate of the insured and they will be distributed pursuant to the insured’s Last Will and Testament, or to his/her heirs under law.
If no one tells the insurance company that the parties are divorced and the ex-spouse should not be paid the benefits, the insurance company may go ahead and pay the former spouse. As you can imagine, it is then very hard to get the money back from that spouse and a law suit could be a very expensive proposition.
In order to stop an insurance company from paying a former spouse after the death of an insured, it is important for the insured’s family to give written notice to the insurer at its home office that the designation of the former spouse is not effective under Texas Family Code §9.301. Any “interested party” can give this notice, including the current spouse of the insured, the insured’s children, and/or the insured’s next-of-kin. This notice should be mailed to the insurance company’s home office by certified mail immediately after the death of the insured. A copy of Texas Family Code §9.301 can be found online and should be included with the notice.
To avoid falling into this situation, the insured should contact his/her human resources department and/or his/her life insurance company after the divorce to update the beneficiary designations on retirement plans, life insurance policies, annuities, survivor’s benefits, and all similar benefit plans. It is highly unlikely that the insured still wants his/her ex-spouse to benefit from the insured’s death, so changing the designation to someone who the insured wants to care for is the best course of action.
To learn more about this topic, you can call my office to make an appointment to discuss your situation and the actions that you should be taking. Please call for an appointment at your convenience!