Divorce and Life Insurance – What Happens?

Unfortunately, divorce happens. With that comes a slew of changes that each party must embrace as they begin a new life. Whether each spouse realizes it or not, one often overlooked asset in the proceedings is life insurance. Too often, the policy remains unchanged, and the beneficiary, the ex-spouse, may reap a windfall as a result of an unexpected death.

Fortunately, the Utah Supreme Court has confirmed that divorce may remove the ex-spouse as a beneficiary of an insurance policy – but this is not a guarantee.

In the case Hertzske v. Snyder, 2017 UT 4, a woman claimed rights to the benefits of a life insurance policy on her ex-husband. The policy beneficiaries had never been changed on the policy, and she was listed as the primary beneficiary. The contingent beneficiary, a brother of the deceased man, claimed that the divorce had severed the ex-wife’s rights to that policy.

Important facts to the case were that the divorce decree did not address the policy, and likewise the policy itself did not address what would happen in the event of divorce.

As a result, the court held that the ex-wife was not entitled to the policy benefits under Utah Law (if you’re curious, the specific statute is Utah Code 75-2-804(2)) and that the contingent beneficiary was therefore entitled to the proceeds.

Here’s the rub: if the terms of a life insurance policy state that the policy will be paid to the primary beneficiary, regardless of a divorce, an ex-spouse may receive a windfall, and your family will likely have no way to stop it.

I recommend a couple of ways to avoid this problem. First, regularly review your policies and beneficiary designations. Make sure to update them, especially if you’ve recently undergone a major life event (as is a divorce). Second, create a trust and name that as the beneficiary of a life insurance policy. If you change the terms of your trust distributions, you don’t have to subsequently change your life insurance beneficiaries – or any other beneficiary designations for that matter.

If you have questions, feel free to contact me for a free consultation on your options. At a minimum, you can clear up any unresolved questions you may have on life insurance and estate planning and hopefully get some peace of mind for the future.