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Insurance beneficiaries should be changed after divorce

Couples in North Dakota who obtain a divorce may assume that the court proceedings which typically resolve issues concerning the division of property has also resolved all important financial issues. A recent U.S. Supreme Court decision concerning life insurance benefits, however, serves as a cautionary tale to illustrate that this is not always the case. When a divorce has been finalized, the ex-spouses should each change the beneficiaries on a variety of accounts and on life insurance policies.

In the U.S. Supreme Court case, after a divorced man died, it turned out that his ex-wife was still designated as his beneficiary to receive death benefits from a federal life insurance policy. Changing this would have been a simple matter of filling out a new beneficiary form naming someone else. But this was never done. A state law in the state that the divorce was granted in, after all, stated that a divorce automatically resulted in a former husband or wife being removed as the beneficiary on a life insurance policy. The Court ruled that, despite this state law, the filling out of a new beneficiary designation form was necessary to change who would receive the insurance proceeds. As a result, the Court ruled the ex-wife could collect.

The principles in the case would apply to other accounts and policies that allow a person to name a beneficiary in the event of their death, such as an Individual Retirement Account (IRA), pensions or annuities. Doing this paperwork, therefore, should be on a checklist of things to do after a divorce, such as closing joint bank accounts or credit card account. Failure to do so can result in severe, adverse financial consequences. It can be very beneficial to sit down to consult with your divorce attorney to review actions of this nature that should be taken.

FinancialPlanning.com, "Beneficiary Form Trumps Divorce in High Court Ruling" Ed Slott, Nov. 01, 2013

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