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Divorcing Women: What To Know About Beneficiary Designation Laws

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Divorce involves lots financial housekeeping. If you’re in the middle of it, you’re probably thinking that’s the biggest understatement you’ve heard in quite a while! You’ve had to gather, copy, organize and read through a tremendous amount of paperwork (and it may have been the first time you laid eyes on some of it). But it’s all worth it. You now have significant files of financial information at the ready. You’ve come a long way in terms of financial awareness and organization. And you’ll be able to put all of that to use in your new life as a single woman.

Once your divorce is final, the paperwork won’t be so constant or so intense – but, there still will be divorce-related chores to be done before you move ahead. For example, you’ll need to update key documents to accurately reflect your new status.

As part of that process, it’s especially important to revisit the named beneficiaries on life insurance policies, retirement plans, annuities, TOD (transfer on death) bank and brokerage accounts, and any other instruments on which a beneficiary is designated. It was perfectly reasonable to name your husband as beneficiary when the two of you were happily married. Once you’re divorced, in almost all cases, you’ll want to name someone else. If you haven’t already, now is the time to think about who should receive benefits upon your death –and you’ll need to officially designate those persons as beneficiaries on all applicable forms.

Some women want to change their beneficiary designations before filing for divorce.

That can work, but it also can be potentially troublesome –particularly if you take action before you have the “divorce discussion” with your husband. You might intend to make the change discreetly, for instance, but if you and your husband use the same financial advisor, your husband may likely be informed of the change. In addition, changes in beneficiary designations on ERISA retirement accounts — 401(k)s, 

403(b)s, pensions, etc., but not IRAs — require the written consent of the other spouse.

If you’ve already rewritten/revised your will to disinherit your ex-husband, you might be under the impression that you’ve done everything necessary regarding beneficiaries. Unfortunately, that isn’t so! Please be aware:Beneficiary designations supersede whatever is specified in your will. That means even if you’ve changed your will, he could still inherit certain assets – unless you also specifically changed the beneficiary designations on each one.

In trying to prevent that, some states have enacted laws that give life insurance carriers a measure of flexibility regarding whom to pay, and when.

In Florida, for example, a 2012 legislative change gave insurance carriers significant latitude in determining to whom benefits should be paid. An insurer can review the marital status of the deceased, and the relationship between the deceased and their stated beneficiary. If the deceased is listed as single, divorced, or married to someone other than the named beneficiary, the insurer can legally pay benefits to a secondary beneficiary instead.

Missouri has taken a slightly different approach. The law there now specifies that in some cases, unless a former spouse is specificallyrenamed as the beneficiary after divorce, it is assumed there that life insurance benefits should be paid to someone else. (According to this article, this statute does not apply to all policies.)

On one hand, new laws concerning beneficiaries can be seen as positive, protective measures. If you neglect to change your named beneficiaries after divorce, some such laws might prevent your ex from collecting the proceeds of your life insurance policy when it’s not what you intended to have happen. On the other hand, it is potentially troubling that the state could assume the authority to second-guess your wishes after your death. It’s clearly best to make your wishes explicitly and legally known to all concerned, well in advance.

On top of all of the above, should you (or your estate) become embroiled in a legal battle over beneficiaries that reaches a federal court, there is another factor to consider. The U.S. Supreme Court has ruled that when a conflict exists between federal and state laws in such cases, the federal law prevails. That is, even if an applicable state law says that divorce automatically removes an ex-spouse as beneficiary, federal law could negate that. In fact, court decisions have been made in favor of the named beneficiary even when that person has signed a valid spousal waiver!

The clear take-away from all this: Change each and every one of your beneficiary designations individually, and do it as soon as you can legally do so. Neglecting that paperwork could cost your intended beneficiaries untold time, expense, and legal trouble trying to collect the benefits you wished them to have.

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Reminder: Even with new legislation in some states, leaving named beneficiaries unchanged can be a tremendously expensive mistake. Should you die without having done so, your ex-husband could stand to receive assets you would never have wanted for him to inherit. More importantly, your children, or whomever else you would really want to receive those benefits, could be left out in the cold.

Hot tip: Issues regarding named beneficiaries can be problematic for divorced women. If you are named as beneficiary on your ex-husband’s life insurance policy, and/or if his life insurance is being used to insure payments of alimony and child support to you, be careful. Some of these new laws might void your right to collect as a former spouse, even though the life insurance was intended for your benefit! To avoid difficulties and unintended consequences, be absolutely sure you are renamed as beneficiary once the divorce is finalized.

Legal matters: Because of elective share rights, you cannot completely disinherit your husband while you are still married. Depending on the state you live in and whether or not you have children, elective share usually ranges from 1/3 to ½. That means that the “disinherited” spouse would still receive 1/3 to ½ of marital assets, even if he/she has been cut out. Automatic Temporary Restraining Orders (ATROs) often prevent either spouse from making any changes once the divorce action has commenced.

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