Divorce and Beneficiaries: Removing Former Spouses from Policies

Life after a divorce comes with many challenges, one of which can be determining if your former spouse still is listed as the beneficiary of the life insurance policy or annuity. In the shuffle of divorce, it is easy to lose track of this and neglect to change the designated beneficiary of the life insurance policy.

Many states do not require automatic removal of an ex-spouse from a life insurance policy. This can lead to the ex-spouse being awarded the proceeds when the insured passes away, rather than another beneficiary such as a second spouse or child. The State of New York has taken steps to solve this issue by passing New York Estates, Powers and Trust Law (ETPL) § 5-1.4.

ETPL § 5-1.4 provides that:

“Except as provided by the express terms of a governing instrument, a divorce (including a judicial separation as defined in subparagraph (f)(2)) or annulment of a marriage revokes any revocable (1) disposition or appointment of property made by a divorced individual to, or for the benefit of, the former spouse, including, but not limited to, a disposition or appointment by will, by security registration in beneficiary form (TOD), by beneficiary designation in a life insurance policy or (to the extent permitted by law) in a pension or retirement benefits plan, or by revocable trust, including a bank account in trust form, (2) provision conferring a power of appointment or power of disposition on the former spouse, and (3) nomination of the former spouse to serve in any fiduciary or representative capacity, including as a personal representative, executor, trustee, conservator, guardian, agent, or attorney-in-fact.”

In short, ETPL § 5-1.4 determines that the former spouse is removed as beneficiary from a life insurance policy, pension plan, revocable trust, or annuity upon the divorce. It also ensures that he former spouse is no longer able to be appointed to represent the estate of their deceased former spouse. It is the policy owner’s choice whether or not to keep the former spouse as the beneficiary. Failure to take steps to maintain the former spouse as the beneficiary will result in his or her upon divorce.

This law is to ensure that neglecting to remove a former spouse from policies will not penalize the neglectful party, and that former spouses will not unjustly be awarded benefits the owner did not intend for them. ETPL § 5-1.4 defends the deceased spouse’s estate from a former spouse’s claim over it, even if the former spouse presents a will drafted before the divorce. If explicit direction is not provided after the divorce, the estate of the deceased spouse will not fall under the control of the former spouse.

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