Throughout your marriage, you get insurance to make sure your wife and children will be provided for financially in the case of your passing. What if your ex is the life insurance beneficiary? Your wife becomes your ex if you get divorced. She no longer qualifies as a beneficiary of your life insurance following your death by operation of law. You must re-designate your ex as a beneficiary as soon as your divorce is final if you still want them to receive your life insurance proceeds.
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Married people typically identify their spouse as the policy’s beneficiary when they purchase life insurance. But what happens if a couple like that gets divorced? Once the divorce is finalized, the spouse who owns the life insurance policy will frequently simply change the terms of the policy to name someone else (perhaps a child or parent) as the new beneficiary. Although this is a very simple process, if a couple’s divorce settlement includes stipulations about life insurance issues, things could become a little more complicated.
Along with your kids, your spouse has to be taken care of. To have money on hand in the case of your death is the entire purpose of the insurance. If insurance benefit claims go through probate only because your policy suddenly names a nonexistent spouse beneficiary, it will be a waste of time and money.
On who receives life insurance after divorce, there is no set rule. When it comes time to pay the life insurance payout, variables such as the type of policy, the state where the policy was issued, the location where the couple resided, and the language in the divorce order will be taken into consideration.
What Prevails When A Beneficiary Spouse Becomes An Ex Spouse
What law governs is the main point of the divorce case with life insurance issue.
First, it must be decided if federal law or state law applies to the insurance coverage. A former spouse automatically loses their designation as a beneficiary on life insurance plans, according to legislation that has been passed in several jurisdictions. The designations of ex-spouses preserved by federal law are not subject to automatic revocation.
Second, a divorce judgment must be examined to see if it qualifies as a qualified domestic relations order. The circumstances behind the beneficiary change in beneficiary dispute cases must also be looked into to make sure there was no fraud or undue influence. To correctly manage conflicting claims, all these prior actions must be taken.
There may be a clause in a divorce settlement (usually known as a “Judgment of Divorce” in Michigan) mandating one spouse to give life insurance to the other for a predetermined amount of time following the divorce’s conclusion. Such a clause is occasionally inserted by Michigan’s family law judges to guarantee child and/or spousal support in the event that the paying spouse passes away too soon.
Can a Named Beneficiary Override a Divorce Decree?
No and yes. Only in circumstances where the divorce decree (often a state court decision) is not precluded by regulations governing the life insurance policy itself may a divorce decree override a beneficiary designation in a life insurance policy. Contradictory state law documents, such as divorce decrees, may not prevail over certain federal laws governing federal life insurance plans.
What Happens To The Payout For The Ex Beneficiary
The designation of a spouse in a life insurance contract is immediately revoked upon divorce under Michigan law, MCL 552.101, which is a common “revocation upon divorce” statute. A spouse’s desire to no longer name his or her ex-spouse as a beneficiary on any life insurance plans is the legislative presumption built into the law.
Michigan’s “revocation upon divorce” provision has been upheld by Michigan courts. Even if a spouse is still listed as the beneficiary on a life insurance policy, it is against the law for an ex-spouse to receive the payout.
This does not prevent an ex-spouse from receiving benefits; however, after the divorce, this beneficiary designation must be explicitly reaffirmed.
A law known as MCL 700.2807 also protects the payout. This law revokes not just your ex-spouse as a beneficiary but also any members of the ex-spouse’s family listed on the policy as beneficiaries. Evidently, because it occurred frequently, the Michigan Legislature took the necessary action to take care of itself following divorce.
You should be aware this law does not apply to financial accounts if the ex-spouse is listed as the beneficiary after the divorce.
In order to ensure support payments, a divorce decree frequently stipulates that the owner of a life insurance policy must continue to name the ex-spouse as the beneficiary. In these situations, the divorce decision mandates the policyholder keep the beneficiary designation in place for this reason.
In Michigan, the divorce judgment actually includes the designation of a beneficiary for your life insurance policy. This indicates that your spouse will not be the beneficiary of your life insurance as indicated in your final court judgment (known as a Judgment of Divorce).
You’ll need to re-designate your ex as the beneficiary once your divorce is final if, for some reason, you decide you genuinely want your ex to continue to be your beneficiary after the divorce.
However, your attorney can include a very specific clause in the final divorce order to ensure that your life insurance policy would be utilized to pay child support or alimony payments after your divorce is finalized and in the event of your death.
If you have kids and your ex depends on your child support payments to cover their daily living costs, removing them from the beneficiary list could put them and your kids in serious financial trouble if you pass away suddenly.
What About Your Next Spouse?
Be careful to speak with your attorney about this crucial matter as your divorce proceedings near their completion. Don’t leave your family in the dark about your motivations when you got divorced or passed away.
You might not die but instead get married.
When people get married and start working, they frequently designate their spouses as the beneficiaries of the life insurance supplied by their employers, as well as of their 401(k), 403(b), IRA, and bank accounts.
Years later, they might get divorced and forget to take their ex-spouse out of the beneficiary designation on these financial instruments, which might be disastrous for any future spouses or your kids.
What should your present spouse do if you pass away and your ex-spouse is notified that they are the beneficiaries of your life insurance, 401(k), IRA, or bank account over the phone?
Fortunately, if you had a good attorney, the Judgment of Divorce should contain a clause that immediately revokes your ex-status spouse’s as a beneficiary. Your new spouse merely needs to refer to the Judgment of Divorce to remedy the situation. To prevent any funds from being disbursed, this must be done right away.
If You Survive Death and Divorce, Remember This
Life insurance issues are a crucial element of the divorce process. For couples going through a divorce who have children, this is especially true. The financial interests of both parties and their dependent children are safeguarded by maintaining proper life insurance.
Making the necessary beneficiary changes, taking into account the cash value of whole or universal life insurance policies, safeguarding alimony and child support income, and, most significantly, making sure that any affected children are always financially safeguarded are all part of this procedure.
Some other things to remember about divorce and life insurance:
[a] Beneficiaries and policy owners should be updated in the event of a divorce to reflect
the marital status change and its effects.
[b] Although the cash value of a permanent policy may be seen as a marital asset, term life insurance is frequently regarded as a separate asset.
[c] Determine the policy’s cash value, if any, and how to divide it, if necessary.
[d] Maintain a policy on your ex with a benefit amount high enough to replace child support or alimony if you have primary custody of your children, at least until the final child reaches adulthood.
[e] It is a good idea to get life insurance on yourself if you end up being a single parent.
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