Change Your Beneficiaries Post Divorce!

A few years after Paul’s second marriage ended in divorce, he retired and when he did he met with a financial planner to plan his retirement. He set up a retirement account and named his children as the beneficiaries. He also purchased a small life insurance policy and named them as beneficiaries. However, after his death several years later, his children found out that his second wife was still the beneficiary on a significant life insurance policy he had with his former employer.

Fortunately his children found out about this policy before it had been paid out to his second wife. When they did, they informed the insurance company, in writing, that the beneficiary designation for that policy had predated his divorce from her which meant that the designation to her was revoked. Upon receipt of this notice, the insurance company withheld payment to Paul’s ex and the children received their inheritance.

As I outlined in my prior blog article, the law in New York creates a presumption that many designations made during a marriage are revoked upon a divorce unless:

• It is remade after the divorce or;
• The divorce judgment specifically refers to the asset (often an insurance policy or retirement account) and allows the former spouse to continue to be named as beneficiary (which is sometimes the case if that former spouse is owed support).

While this story has a happy ending, it could have been much different. The children may not have found out about the insurance policy at all, or until after Paul’s second wife had received and spent all the money. And while they would have been entitled to a return of the funds, that would have required a legal proceeding and there is no guarantee that his second wife would have been able to repay the money.

After I conclude a divorce settlement with my mediation clients, I recommend that they look carefully at everything they own, including benefits they have with their employer, which are often not obvious. Unless their agreement requires otherwise, I further recommend they change the beneficiary designations for any retirement accounts, pensions and insurance policies.

Even if your agreement requires you to maintain your former spouse as the beneficiary on any of these accounts, it is still a good idea to complete a new beneficiary designation so there is no doubt about what you intended. Your beneficiaries will thank you for saving them a lot of trouble down the road!

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