Effect of Divorce on Beneficiary Designations

Under the old law, if a couple divorces and one spouse later dies, if the other ex-spouse is listed as the primary beneficiary on the life insurance policy, IRA, or annuity, or POD bank account of the dead spouse, then that other ex-spouse will inherit the monies or assets, even if the deceased spouse re-married before his or her death.

On April 24, 2012, Governor Rick Scott signed into law, House Bill No. 401 which states that if a couple gets divorced or their marriage is found to be invalid, then if one spouse dies and the other ex-spouse is listed as the primary beneficiary on the life insurance policy, or IRA, or annuity, then the ex-spouse will not inherit that asset and will be treated as if he or she already died. The new law applies to anyone who dies on July 1, 2012 or after, regardless of when the decedent designated a beneficiary for the asset.

For example, Fred and Wilma marry in 1980 and Fred lists Wilma as his primary beneficiary for his life insurance, IRA, brokerage account, and his annuities. Then in 1990 they officially divorce. If he dies in 1991, even though Wilma is listed as the primary beneficiary, the law will treat her has having died before Fred. The assets will then be paid out to whomever he listed as the contingent beneficiary, presumably his kid, Pebbles.

Whereas under the old law, if Fred later married Betty after he divorced Wilma and then died without changing the beneficiary designation, Wilma would be the one to inherit these assets.

There are some important exceptions to this new rule and, thus, it will not apply to the following situations: if federal law provides otherwise, if the beneficiary designation is made after divorce, if the beneficiary designation is irrevocable under state law, for certain state-administered plans, and if under the divorce decree or order of dissolution, the ex-spouses can not alter the beneficiary designations. Another big exception to this new law is a bank account titled as “Joint Tenants with Rights of Survivorship.” If Fred and Wilma had a bank account titled as joint tenants with rights of survivorships, upon Fred’s death, Wilma will inherit the entire account. However, assets that are owned as tenants by the entireties, will convert to tenants in common after a divorce.

The change in the law brings these types of beneficiary designations consistent with the law that is applied to the administration of a will in probate or the administration of a trust. After a divorce, the ex-spouse is treated as pre-deceased in terms of their inheritance rights under the other spouse’s will or trust.

It is important to review your estate planning documents, such as your will, trust, power of attorney, etc., and your beneficiary designations, whenever you reach a life milestone, such as divorce, marriage, new child, new grandchild, or if there is a change in your situation. If fact, it is a good idea to periodically review your estate planning documents and beneficiary designations.

Our firm helps people work through these issues so that our clients have a consistent and integrated estate plan; you can contact us at (239) 939-4888.

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