Effective July 1, 2012, a former spouse of a decedent is automatically cut out of non-probate assets which include life insurance policies, annuities, employee benefit plans, payable on death accounts, individual retirement accounts, transfer on death accounts and securities, according to the language of a recent statute change.
What does this mean for a divorcee?
Even if your deceased ex-husband/wife intended for you to be a beneficiary on his or her life insurance policy post-divorce, statute 732.703, may automatically cut off your interest in assets from their policy. However, this statute may be convenient for divorcees who simply forget to amend the terms of their policies to exclude their former spouses.
In other words, according to the statute, if Sam has a multi-million dollar life insurance policy, and his ex-wife, Suzy, is a beneficiary under that policy, her interest will be terminated if Sam dies after July 1, 2012, even if Sam never changed the terms of this policy to exclude Suzy.
This statute treats the beneficiary who is also the former spouse of the decedent as if he or she died before the decedent, therefore allocating any of the enumerated assets of the decedent to the contingent beneficiary, or possibly the heirs.
Back to our example, Sam and Suzy divorced in 2013. Sam had four children with Suzy, and post-divorce, he wanted Suzy to remain a beneficiary of his policy because they were married for 35 years, she helped manage his business during their marriage and she took great care of their children. Sam did not change the terms of his policy and left Suzy as a beneficiary. Sam remarried late 2013 to Carol. In 2014, Sam died unexpectedly in a car accident.
Under this statute, even though it was Sam’s intention for Suzy to receive assets from his life insurance policy, her interests may be void under the statute. Since the statute excludes Suzy from inheriting any assets from Sam’s life insurance policy, the assets that Suzy would have earned, now passes to Sam’s contingency beneficiary, as if Suzy died first.
This can cause a great deal of messy litigation between former spouses and new spouses or heirs. A main reason is that the law is not clear, it may be unconstitutional, and there are many exceptions.
Some exceptions to this law that may not nullify a former spouse’s interest to such assets may include:
a. To the extent that federal (or other state) law provides otherwise;
b. To the extent the designation of the former spouse was irrevocable under applicable law;
c. If the governing instrument is signed by the decedent after the judgment is entered and the governing instrument expressly provides that the asset will be payable to the former spouse;
d. If a court order required the decedent to acquire or maintain the asset for the benefit of the former spouse or children of the marriage or if the court order provided the spouse did not have the right to unilaterally terminate or change the beneficiary (i.e. if the marital settlement and final judgment require the ex-husband to maintain insurance on his life payable to the ex-wife, then until the agreement or order are no longer binding, the beneficiary designation in favor of the ex-wife will be valid);
e. If the decedent remarries the individual whose interest would have been revoked and they remain married until the decedent’s death; and
f. If the asset is held in 2 or more names in such a fashion where the death of one co-owner vests ownership of the asset in the surviving co-owner(s) (i.e. the statute does not apply to accounts held as joint tenants with rights of survivor-ship).
If you are planning to get a divorce in the future, or are in the process of one now, and intend to keep your former spouse as a beneficiary of any of your non-probate assets, make sure to include any designation of assets in writing in your marital settlement agreement to avoid future litigation. You can also call your insurance company and ask if they have any forms or procedure to reaffirm your desire to keep your former spouse as beneficiary. This could help avoid any future issues.
If you feel as though you are entitled to any proceeds from a life insurance policy which listed you as beneficiary, but the insurance company refuses to pay you, feel free to contact our office at (954) 515-5000 for a FREE consultation.