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Protect Your Life Insurance Post-Divorce

Posted on May 4th, 2011 by Teri Havron

Are you recently divorced? Have you changed your life insurance beneficiary?

Beneficiary designations are often overlooked as divorce can be a long and difficult process. Nonetheless, an ex-spouse could still end up receiving a windfall if the former husband or wife fails to remove the ex-spouse as the designated beneficiary on life insurance policies.

Under Illinois law, dissolution of marriage will automatically revoke provisions of wills, revocable trusts, and powers of attorney that pertain to a former spouse. However, a former spouse’s designation as a beneficiary to a life insurance policy is not automatically terminated by law upon divorce. A carefully drafted marital settlement agreement could waive the beneficiary’s rights to the life insurance proceeds, but it’s best to change your policy designations immediately upon divorce.

In Richard v. Martindale, 2010 U.S. Dist. LEXIS 58518 (N.D. Ill. 2010), the parties divorced after 22 years of marriage but the husband never removed his ex-wife as beneficiary of his life insurance policy. His sons, the named successor beneficiaries, sued for the proceeds, claiming that the ex-wife waived her right in the parties’ marital settlement agreement. The federal district court held the unambiguous waiver in the agreement was sufficiently specific to bar the ex-wife from collecting the life insurance proceeds.

Unfortunately, not all successor beneficiaries have been as successful. There are numerous cases in Illinois where the marital settlement agreement was not so carefully drafted or no steps were taken to change the beneficiary designation in a life insurance policy. In these cases, the ex-spouse, not the decedent’s children or successor beneficiary, received the proceeds or benefits. See In re Marriage of Myers, 257 Ill. App.3d 560 (1st Dist 1993); O’Toole v. Central Laborers’ Pension and Welfare Funds, 12 Ill. App.3d 995 (3d Dist 1973).

Any significant change in your family circumstances, including divorce, is a good time to review your entire estate plan. Updating and maintaining your plan, through properly drafted estate documents, is necessary to provide safety and comfort to you and your loved ones.

Should you have a question or would like to discuss your estate plan, please contact Teri L. Havron.