A. In most states, designating the spouse, by name, as beneficiary entitles that spouse to the proceeds of the insured spouse's policy, even if they are divorced and even if the former spouse remarries. The divorce decree or property settlement agreement will not take precedent over the beneficiary designation on the policy itself. Some states, on the other hand, have assumed that if you are divorced then you intend to name someone other than an ex-spouse, and those states have passed statutes invalidating an ex-spouse as beneficiary on the policy.
If you want to continue to name an ex-spouse as a beneficiary (maybe to take care of child support obligations, or for other reasons), you may want to complete a revised beneficiary designation form, listing the ex-spouse as the beneficiary again. This would provide evidence to the state that there was intent to keep the ex-spouse as a beneficiary of the policy after the divorce was final.
What if you don't want an ex-spouse as beneficiary? Too often divorcing parties and divorce lawyers rely on the state divestiture statutes and skip the step of changing beneficiary designations. Once again, best practice here is to complete a new beneficiary designation form because you may be at risk if you just rely on these state laws.
Now with that being said, any plan or insurance policy that is connected to your employment and subject to ERISA may or may not automatically change beneficiaries upon divorce. ERISA pre-empts state law and will control in those situations. And recently the U.S. Court of Appeals held that a divorce decree would qualify as a Qualified Domestic Relations Order (QDRO) and that the life insurance death benefit should be paid to the decedent’s daughter as stated in the divorce decree, despite the fact she was not the designated beneficiary on the life insurance policy.
So, if you are divorced and have a 401(k) plan or an insurance policy issued through your employer, the courts could look to the divorce decree or separation agreement for guidance if they rule that it qualifies as a QDRO. The moral of this cautionary tale? Don’t rely on separation agreements, divorce decrees, court rulings or state statutes for your beneficiary planning.