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June 20, 2018
What if a deceased’s life insurance policy lists an ex-spouse?

There are seemingly an endless number of details that need to be addressed during the divorce process and after. One that may slip through the cracks because it didn’t seem immediately pressing is changing the benefactor on a life insurance policy or other non-probate assets. Your will may have been updated, but perhaps non-probate assets like individual retirement accounts, insurance policies, annuities or mutual fund account were not addressed.

Potential issue

Theoretically, this can lead to a former spouse receiving the assets upon your death. This would leave other benefactors such as a current wife of the deceased or children from a previous marriage in the awkward position of a legal dispute with a former stepparent, the ex of a deceased spouse or even your parent. A recent case in Minnesota made the national news, pitting the adult children against their stepmother. An Eighth Circuit ruling by a three-judge panel determined that the ex-wife could still collect the policy per the state’s laws at the time of the policy’s purchase. The Supreme Court, however, reversed it in an 8-1 decision that revocation upon divorce does not violate a contracts clause.

California’s rules

There are 23 states, including California, that revoke the designations of all non-probate assets. However, life insurance policies are excluded from revocations. The designation can stand unless the following circumstances are involved:

  • The divorce decree and property settlement specifically indicates the ex has no right to the policy
  • The policy indicates that it voids the beneficiary’s right to payment if they are divorced
  • A ex-spouse legally waives their right to the policy payment

It’s best to check your policy

There are a number of extremely difficult and pressing decisions that need to be made as a couple divorces. Designations of non-probate assets may not be at the top the list, but it is wise when working with an attorney to discuss this as part of the process of dividing assets and updating your financial and estate plans. Regardless of the potential benefactors’ age, its best to make sure all your financial affairs (including retirement plans, offshore accounts, real properties and businesses) are in order.

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