Over the past month, I have learned of several life insurance companies nakedly claiming to divorcee beneficiaries that divorce automatically divested them of beneficiary status under the deceased former spouse’s life insurance policy. This automatic divestment theory seemed extreme, so I did some research.
Here is what a well-respected insurance treatise has to say about the issue:1
Under the broad authority given to insureds by the general rule that they may designate whomever they choose as beneficiaries of the life insurance, the insured, in the absence of some controlling statute or regulation to the contrary, or a requirement of an insurable interest, may take out a policy on his or her own life and make it payable [to anybody].
This same treatise goes on to say that:
Absent a policy provision to the contrary, a spouse is not made ineligible to have the status of a beneficiary merely by virtue of divorce from the insured. … Divorce per se does not affect or defeat one spouse’s rights as a designated beneficiary in a policy on the other spouse’s life, absent a change in beneficiary designation or a provision in the contract of insurance that makes the beneficiary ineligible if the status of spouse does not exist at the time of death. Although modern trends are to remove fault from divorce proceedings, it may still play a role, and overcome the general rule, in a few jurisdictions. By virtue of statute or case law, for example, dissolving the relationship because of ‘adultery’ may disqualify the guilty party from receiving the proceeds. The law of any given jurisdiction should be reviewed on this issue. A spouse’s interest as a beneficiary under a life policy can be defeated by a disposition of insurance policies in a divorce decree. On the other hand, when a marriage dissolution agreement requires a party to maintain a specified, existing life insurance policy naming his or her ex-spouse as the beneficiary, the ex-spouse thereby obtains an equitable property interest in the policy and its proceeds that is superior to the legal right of any subsequently designated beneficiary who is not a bona fide purchaser for value without notice. … In community property jurisdictions, the effect of a divorce that does not otherwise dispose of the policy leaves the parties as tenants-in-common, with the insured retaining the right to dispose of the insured’s half of the policy as he or she chooses, so that naming a new beneficiary is effective as to the insured’s half, but the failure to name a new beneficiary leaves the ex-spouse as the beneficiary of the disposable half, and the owner in his or her own right of the other half.
Divorce can lead to divesting a former spouse of life insurance beneficiary status. But, contrary to what some insurance companies seem to tell divorcee beneficiaries these days, divorce does not automatically divest a former spouse of life insurance beneficiary status. Practical pointer – if you are divorced or in the process of getting divorced and you want to keep your former spouse as your life insurance beneficiary, clarify that intent by putting it in writing – perhaps notarized or with witness signatures.
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1 4 Couch On Insurance § 59:5 (West, Dec. 2013) (internal citations omitted).