Most people going through a divorce are worried about many things, including their finances. There might be cars, houses, retirement money, custody of the children, and much more to figure out how to divide fairly and legally. Many people simply forget about life insurance, though, because it’s not something that will be paid out right away once the divorce is finalized. It’s important to know exactly how divorce affects life insurance so you can ensure that the money goes where you would like it to go once you pass away. Whether you have a beneficiary dispute, a life insurance claim delay or a life insurance claim denial, we can help.
Several factors affect what happens to your life insurance policy once you get divorced, including the following:
Revocation upon divorce states life insurance
In some states, the act of getting divorced automatically removes the ex-spouse as the beneficiary of the insured’s life insurance policy. This is referred to as revocation of non-probate assets upon divorce. At least 26 states are revocation upon divorce states, including Alabama, Alaska, Arizona, Colorado, Florida, Hawaii, Idaho, Iowa, Massachusetts, Michigan, Minnesota, Montana, Nevada, New Jersey, New Mexico, New York, North Dakota, Ohio, Pennsylvania, South Carolina, South Dakota, Texas, Utah, Virginia, Washington, and Wisconsin. Even if the insured doesn’t remove their ex-spouse as the beneficiary, the ex-spouse is automatically revoked upon divorce. We just won a $1.2 million MassMutual life insurance dispute.
Living In A Community Property State with a life insurance claim
In community property states, it’s possible that even if the insured changes the beneficiary on the life insurance policy after a divorce, their ex-spouse might still be entitled to at least a portion of the life insurance proceeds. If any of the insurance premiums were paid while the couple was married, the spouse would be entitled to some of the benefits upon the insured’s death.
Irrevocable vs. Revocable Beneficiary regarding Life Insurance
Most life insurance policies allow the insured to choose an irrevocable beneficiary. This means that regardless of the change of circumstances in the insured’s life, the named beneficiary cannot be changed. If you purchased this type of policy, divorce wouldn’t change anything. If your beneficiary is your soon-to-be ex-spouse, they will remain your beneficiary unless they agree to the change. The purpose of naming an irrevocable beneficiary is to ensure that the life insurance payout goes exactly where you want it to go. Many people use this option when naming children as beneficiaries. However, some people also name their spouse as the irrevocable beneficiary.
Federal Law vs. State Law and Life Insurance Claims
Another factor that can affect a named beneficiary after a divorce is whether the life insurance policy is governed by state or federal laws. Some policies are governed by federal laws, which will trump state laws. For example, if a person has a life insurance policy through Servicemembers’ Group Life Insurance, it is governed by federal law. Even if a state court rules that the insured must leave their ex-spouse as the beneficiary on the policy (which can sometimes happen when there are disagreements regarding child support or other payments), federal law will trump, or override the state ruling, and whoever the insured has named as their beneficiary will get the payout.