Divorce & Death Benefits: 5 Points to Keep in Mind

Divorce severs not only emotional ties, but also financial and legal ones. As such, proper planning is necessary to avoid unintended and unfavorable consequences when it comes to death benefits.

If you’re separating from your spouse, here are five facts about divorce and death benefits that you need to keep in mind:

1. Va. Code Ann. §20-111.1(B) broadly defines the term “death benefit” to include “any payments under a life insurance contract, annuity, retirement arrangement, compensation agreement or other contract designating a beneficiary of any right, property or money in the form of a death benefit.”
2. The default rule regarding divorce and death benefits, pursuant to Va. Code Ann. §20-111.1(A) provides that “Except as otherwise provided under federal law or law of this Commonwealth, upon the entry of a decree of annulment or divorce from the bond of matrimony on and after July 1, 1993, any revocable beneficiary designation contained in a then-existing written contract owned by one party that provides for the payment of any death benefit to the other party is revoked.” In other words, Virginia’s divorce laws operate to revoke spousal beneficiary designations. This Code provision helps people who failed to switch out their former spouse as a beneficiary during the divorce process.
3. Per Va. Code Ann. §20-111.1(A), “A death benefit prevented from passing to a former spouse by [the revocation of a beneficiary designation pursuant to divorce] shall be paid as if the former spouse had predeceased the decedent.” Although this safeguard exists, it is important to make sure that you remember to change actual designations, especially in case of any clerical errors that could be made by insurance companies. It’s always better to be safe than sorry! Furthermore, make sure you remember to change other instruments upon divorce, such as deeds, trust documents, wills, etc.
4. Divorce does not effectively revoke a spousal beneficiary designation if the parties agree otherwise in writing or if the designation applies to a trust (Va. Code Ann. §20-111.1(C)).
5. Va. Code Ann. §20-111.1(E) requires divorce decrees entered on or after July 1, 2012, to contain certain language in conspicuous bold print that encourages parties to change their beneficiary designations. Plan administrators can’t be held liable for payments mistakenly made to former spouses if they didn’t receive written notification of the revocation.

Another tip to remember is that you can always petition the court to order your spouse to maintain existing life insurance policies that name you and/or your children as beneficiaries. This option can be incredibly beneficial, especially if your former spouse was the only income-earner in the family. You need to make sure that your attorney understands the importance of this option before negotiating your settlement, especially if higher premiums were paid over a long period of time.

While the general rule regarding death benefits and divorce is relatively straightforward, the application often involves some complexity. Contact the family law attorneys at Keithley Law, PLLC, PLLCat (703) 454-5147 to discuss the details of your situation.