How Will My Divorce Affect My Life Insurance Policy?
If you have googled the terms “divorce” and “beneficiary” together, chances are you have come across the phrase; “Automatic Divorce Revocation Statute.” Before diving into what that means, let’s take a look at how life insurance falls into the context of divorce.
As you likely know, life insurance is often purchased by married couples. One spouse is named the insured person, and the other spouse is named the beneficiary to the policy. These policies are usually put in place to ensure financial stability if one spouse passes away unexpectedly. Unfortunately, many marriages end in divorce which poses a predicament for life insurance benefits. If the insured person is getting a divorce from their spouse, who is also the named beneficiary to the policy, it is likely the case that the insured person does not want their ex-spouse to benefit from their death by receiving life insurance benefits. However, changing the beneficiary to a life insurance policy is not always at the forefront of a person’s mind in the middle of an ugly divorce. Therefore, it is actually quite common that an ex-spouse remains the unintended beneficiary of a life insurance policy after a divorce.
“If an ex-spouse is the named beneficiary to a life insurance policy at the time of the insured spouse’s death, the ex-spouse beneficiary will automatically be disqualified from being the beneficiary to the policy.”
Because this situation occurs so frequently, courts and lawmakers began debating solutions to avoid beneficiary disputes involving ex-spouses. What they were able to come up with is the infamous Automatic Divorce Revocation Statute (20 Pa. Cons. Stat. Ann. § 6111.2(b)). Statutes are notoriously difficult to read and understand, but in essence, what the statute says is: If an ex-spouse is the named beneficiary to a life insurance policy at the time of the insured spouse’s death, the ex-spouse beneficiary will automatically be disqualified from being the beneficiary to the policy. The only exceptions are where: (1) the designation is worded in a way to show that the insured spouse intended for the ex-spouse to remain the beneficiary regardless of divorce; (2) a court order, or separation agreement or divorce decree specifically indicates that the ex-spouse will remain the beneficiary; or (3) the designation of the ex-spouse as beneficiary was made after the divorce decree was issued.
Regardless of the automatic divorce revocation statute I would never recommend that any person choose not to make a change to their beneficiary designation in reliance on the law. Although it may seem pretty straightforward, the exceptions listed above provide a significant amount of wiggle room for interpretation. As a result, many times these types of claims will push an insurance company to file an “interpleader action” which asks the court to determine who the rightful beneficiary will be. These actions deplete the face value of the policy, tend to be very inefficient, and will likely delay the resolution of your claim for 1-2 years.
For those of you who only skimmed the above information and are looking for the condensed version:
- If you have a life insurance policy of any kind and are going through a divorce, speak with an attorney about how to properly ensure your beneficiary is changed from your soon-to-be ex-spouse.
- If you are in the middle of a separation agreement and the life insurance benefits are awarded to you as a form of spousal or child support, speak to an attorney about how to make sure the designation is legal and binding.
- If you choose to keep your ex-spouse as the beneficiary to your policy, speak with an attorney about how to make that happen.
