08/03/2015 - Your Divorce Is Finalized: Change Your Beneficiary Now!

What happens if I divorce my spouse and I don't change the designated beneficiary on my insurance policy?

Every state has its own law governing this, but in Pennsylvania the insured's spouse is considered to have predeceased the insured spouse unless it appears the designation was intended to survive the divorce based on:

the wording of the designation;
a court order
a written contract between the individual and the spouse or former spouse, or
a designation of a former spouse as a beneficiary after the divorce decree has been issued.

The presumption of being predeceased occurs if the divorce decree is final or even if the insured spouse dies during divorce proceedings and grounds have been established as provided by law.

However, federal law, the Employee Retirement Income Security Act of 1974 (ERISA), may override state law in Pennsylvania and maintain the non-insured spouse as a beneficiary if the policy is part of an employee benefit plan. The Pennsylvania Supreme Court decreed this to be the case in "In re Estate of Sauers" in 2011.

The court reasoned that employers may well operate in several states, the beneficiaries may live in several states and employers deserved the right to be sure what the provisions for beneficiaries would be no matter in which state the insured lives.

In the Sauers case, the insured received a final divorce decree, did not change beneficiaries, and died three months later. The beneficiary designation form listed his ex-spouse first and his nephew second. If a private policy had been used, the nephew would have been awarded the money. But it was an employer based policy and the ex-spouse was awarded the $40,000 instead.

In a very similar case that began in the state of Washington and ended up in the U.S. Supreme Court, Egelhoff v Egelhoff, the same conclusion was reached.

The lesson to be learned is to change beneficiary designations as soon as divorce is final and not depend on state law to make up for lack of due diligence.

Have a great week!

Patti