Automatic Termination of an Ex as a Beneficiary

Life insurance policies are designed to provide financial security to people you care about upon your death. Most people choose to list close relatives like spouses and children as beneficiaries under a life insurance policy.

However, when a married couple gets divorced, they might forget to remove their spouse from their policy, or otherwise assume that the policy no longer applies to them after getting a divorce.

In the past, people may have had to proactively remove a former spouse as a beneficiary under a life insurance policy. However, many states have implemented laws making revocation of a former spouse’s beneficiary status upon divorce the default rule.

Florida Law Governing the Termination of Beneficiary Status

If a spouse is awarded an asset with benefits that are payable upon their death, and their former spouse was initially listed as a beneficiary, Florida Statutes § 732.703 provides that the former spouse’s designation as a beneficiary is void upon divorce or annulment:

“A designation made by or on behalf of the decedent providing for the payment or transfer at death of an interest in an asset to or for the benefit of the decedent’s former spouse is void as of the time the decedent’s marriage was judicially dissolved or declared invalid by court order prior to the decedent’s death, if the designation was made prior to the dissolution or court order.”

As a result, the beneficiary status of a former spouse automatically terminates when the court renders its judgment for dissolution of marriage. This is widely known as a “revocation-on-divorce law.” However, if a spouse dies during divorce proceedings, but before the court finalizes them, the other spouse’s designation as a beneficiary remains valid.

To illustrate this concept, take for example a life insurance policy insuring your life that names your spouse as a beneficiary. If you get a divorce and are awarded ownership of the policy, but forget to affirmatively remove your spouse as a beneficiary, the children of your former spouse may try and claim those benefits at the same time that your children make a claim. Revocation-on-divorce laws try to avoid such cases by automatically voiding the designation of a former spouse on the policy once a court finalizes your divorce.

Under Section 732.703 automatic termination of a former spouse’s designation as a beneficiary applies to the following assets:

  • “A life insurance policy, qualified annuity, or other similar tax-deferred contract held within an employee benefit plan.
  • An employee benefit plan.
  • An individual retirement account described in § 408 or § 408A of the Internal Revenue Code of 1986, including an individual retirement annuity described in § 408(b) of the Internal Revenue Code of 1986.
  • A payable-on-death account.
  • A security or other account registered in a transfer-on-death form.
  • A life insurance policy, annuity, or other similar contract that is not held within an employee benefit plan or a tax-qualified retirement account.”

Section 732.703 also specifies several exceptions to the automatic termination rule. Typically, these exceptions involve a competing law or instrument that expressly recognizes the former spouse’s right to receive survival or death benefits from the asset in question. Such instruments include, for example, wills, trusts, retirement plans, and court orders.

Constitutional Concerns for Revocation-On-Divorce Laws

Many other states have enacted laws concerning the automatic termination of a former spouse’s beneficiary status upon divorce or annulment. Courts have interpreted such laws to retroactively apply to agreements that were entered into before the revocation-on-divorce law was enacted.

However, some people have argued that retroactive application violates the Contracts Clause of the United States Constitution. Under Article I, Section 10, clause 1 of the U.S. Constitution, “[n]o state shall…pass any…Law impairing the Obligation of Contracts.”

In 2018, the U.S. Supreme Court held that the retroactive application of revocation-on-divorce laws—such as Florida Statute’s § 732.703—is not unconstitutional under the Contracts Clause. A state law is considered to be an unconstitutional violation of the Contracts Clause if it operates as a substantial impairment of a contractual relationship.

The Court found that a revocation-on-divorce law did not substantially impair a contractual relationship, reasoning that such laws were designed to reflect the policyholder’s intent to remove a former spouse as a beneficiary from a life insurance policy. Furthermore, a policyholder does not have a reasonable expectation of staying a beneficiary of the policy after divorce. Moreover, if they wanted to, the policyholder can avoid automatic revocation of their former spouse’s beneficiary status by renewing their designation after divorce.

The Virga Law Firm, P.A. Is Ready to Advocate for Your Rights

Need legal advice regarding your divorce? Call The Virga Law Firm, P.A. to consult with a member of our dedicated legal team about your case. We have experience handling sophisticated financial issues associated with divorces, such as proceedings concerning the equitable distribution of marital assets.

Please call The Virga Law Firm, P.A. at (800) 822-5170 or contact our office online to schedule a consultation.

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