What Happens to the Life Insurance After Divorce?

It depends on what was put into writing – or not! On January 10, 2022, the Massachusetts Supreme Judicial Court (SJC) ruled that where a former husband failed to change the beneficiary designation on his life insurance policy, the divorce operated to revoke the designation of his former wife as primary beneficiary.

In the case of American Family Life Assurance Company of Columbus v. Joann Parker, the SJC was asked to consider whether the Massachusetts Uniform Probate Code (UPC), which went into effect on March 31, 2012, applied retroactively to a policy of insurance purchased by Sean Parker in 2010.

When he purchased the life insurance policy in 2010, Sean named his then-wife, Dawn, as primary beneficiary and his mother, Joann, as the contingent beneficiary. Sean and Dawn divorced in 2016, but their Separation Agreement makes no mention of the life insurance policy. Rather, their Separation Agreement provides only that they divided their personal property to their satisfaction and that there were no agreements between them outside of the Separation Agreement.

Following the divorce, Dawn continued to pay the premiums on Sean’s insurance policy, because she claimed he had agreed that she remain the beneficiary of the policy. Sean died in 2018 without having changed his original beneficiary designation to someone other than Dawn. The insurance company challenged Dawn’s request to be paid the death benefit given that the parties were divorced two years earlier.

Section 2-804 of the Massachusetts UPC provides:

Except as provided by the express terms of a governing instrument, a court order, or a contract relating to the division of the marital estate made between the divorced individuals before or after the marriage, divorce, or annulment, the divorce or annulment of a marriage:

(1) revokes any revocable (i) disposition or appointment of property made by a divorced individual to the individual’s former spouse in a governing instrument and any disposition or appointment created by law or in a governing instrument to a relative of the divorced individual’s former spouse….

The Trial Court ruled that Section 2-804 applied retroactively and Joann was entitled to the life insurance proceeds, not Dawn. Dawn filed an appeal. In ruling that Dawn was out of luck, the SJC held that the UPC expressly provided for retroactive application of its provisions as follows:

Except as provided elsewhere in this act, on the effective date of this act:
1. this act shall apply to pre-existing governing instruments, except that it shall not apply to governing instruments which became irrevocable prior to the effective date of this act….

Dawn’s first mistake was failing to have counsel represent her in the preparation of the Separation Agreement, which made no mention of the life insurance policy. Her second mistake was not entering into a written agreement with Sean, following the divorce, that her payment of the life insurance premiums entitled her to the life insurance proceeds.

In this case, the SJC has ruled for the first time that Section 2-804 does indeed apply retroactively to revocable appointments of property made to a former spouse. The SJC pointed out that Section 2-804 was designed, in part, to protect people who made pre-divorce beneficiary designations in favor of their ex-spouse and then failed after the divorce to follow technical requirements to change those designations.

It is, of course, always best to review and change beneficiary designations following a divorce to avoid the battle of the beneficiaries, like the ex-wife and her former mother-in-law in this particular case.  However, the UPC now clearly applies as a stop-gap against failure to make a change of beneficiary after the divorce.

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