Earlier this week I received a call from an ex-husband had divorced his wife in June of 2015. He and his wife agreed that he could be a life insurance policy on her.
They continued to live together after divorce until the ex-wife died in December 2015. Just that week he had received a letter from the insurance company that they denied his claim on the $100,000 policy because of the divorce.
Further questions revealed that the man did not want to pay for an attorney and instead spent $300 for some forms and had done the divorce himself. The ex-husband wanted to know if there was anything that could be done he had been paying on the policy for over ten years. Unfortunately, in his case, the law does not favor him in this case as I will discuss below.
Failure to Change the Beneficiary of a Life Insurance Policy
It is essential to change the beneficiary on your life insurance beneficiary policy after a divorce in Texas.
It is not uncommon for people to forget to change their beneficiary designations after a divorce. For this reason, the Texas legislature passed a law to address the situation. Texas Family Code §9.301 specifically sets out provisions to deal with a case where a pre-divorce designation of an ex-spouse as a beneficiary of life insurance benefits has been made.
Under this statute, a pre-divorce designation of a former spouse is not effective UNLESS:
- the decree designates the insured's former spouse as the beneficiary;
- the insured redesignates the former spouse as the beneficiary after the rendition of the divorce decree; or
- the former spouse is designated to receive the proceeds in trust for, on behalf of, or for the benefit of a child or a dependent of either former spouse.
An ex-spouse will not be able to collect on the pre-divorce life insurance policy unless they meet one of the three preceding criteria.
Instead, according to Texas Family Code §9.301 Section (b), the proceeds of the policy are payable to the named alternative beneficiary or, if there is not a named alternative beneficiary, to the estate of the insured.
Keep in mind that if the insurance company is not informed that the parties have divorced and the ex-spouse should not be paid the benefits, it is possible the insurance company may pay the former spouse. In such a case it could be costly and difficult to recover the money.
What can be done if an ex-spouse is still designated as beneficiary?
The best thing to do would be after your divorce to contact your life insurance company after and to update the beneficiary designations on retirement plans, life insurance policies, annuities, survivor’s benefits, and all similar benefit plans.
Alternatively if the insured has passed away then one thing that can be done to stop an insurance company from paying a former spouse after the death of an insured is to give written notice by certified mail to the insurer at its home office that the designation of the former spouse is not valid under Texas Family Code §9.301.
What could the ex-husband have done to prevent his predicament?
In the husband’s case, he could either have made sure a provision was placed in the divorce decree designating him as a beneficiary of the insurance policy. Alternatively, after the divorce, he could have beneficiary re-designated as a beneficiary.
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