Divorce Effectively Acts As a Termination of the Beneficiary Designation..Right?
An issue that comes up more often than many may think is the following scenario: One spouse names the other spouse as beneficiary of a life insurance policy. Couple gets divorced. Beneficiary designation is never changed. Policy owner dies. Does the ex-spouse get the life insurance proceeds? For many years, this question was covered by case law arising from different jurisdictions, with some jurisdictions coming to the conclusion that if the beneficiary designation wasn’t changed, the ex-spouse still received the proceeds and others concluding that the divorce effectively acted as a termination of the beneficiary designation.
Clarity has been brought to this issue as it is now covered by statutory law here in Ohio, namely Ohio Revised Code Section 5315.33, which states that the termination of marriage revokes the designation of a spouse as a beneficiary. Two exceptions exist. One is if the designation of beneficiary or the judgment of decree granting the divorce specifically provides otherwise. Second is if the parties later remarry each other. Other than under those two exceptions, the termination of the marriage terminates the beneficiary designation, and the ex-spouse is deemed by law to have predeceased the policy holder.
Motorist Life Insurance Company vs. Sherbourne, 2014-Ohio-5205
That should provide sufficient clarity. Correct? Not so fast. There is the recent case of Motorist Life Insurance Company vs. Sherbourne, 2014-Ohio-5205, decided by the Third Appellate District Court of Appeals in Allen County. In that case husband named wife as beneficiary on two life insurance policies. Parties divorced. Husband did not change beneficiary designations. Divorce decree does not mention life insurance policies. Husband dies.
Question arises as to who is entitled to the life insurance proceeds. Trial court rules that Ohio Revised Code Section 5315.33 applies and wife receives nothing. However, the court of appeals overruled the trial court. After the divorce, on three separate occasions, husband verbally told his life insurance agent that he still wanted his ex-wife to receive the life insurance proceeds. The court of appeals found that the statute does not specifically define “designation of beneficiary” and does not specify that the “designation of beneficiary” refers only to a designation clause in a particular life insurance policy.
Change Beneficiary Designation AFTER The Divorce
Therefore, the court of appeals held that when there is uncontested evidence of the insured’s clearly expressed intent to retain a former spouse as the beneficiary on an insurance policy after the divorce, O.R.C. does not operate to preclude the former spouse from being entitled to the insurance proceeds as a matter of law. Thus, our black and white statutory law now has a bit of gray to it.
The bottom line is remember to address all life insurance proceeds in a divorce decree and remember to change the beneficiary designation after the divorce. It’s better to be safe than sorry!
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Joseph E. Balmer
Joseph Balmer manages the Probate, Trust and Estate Administration department at Dayton, Ohio, law firm, Holzfaster, Cecil, McKnight & Mues, and has been certified by the Ohio State Bar Association as a specialist in Estate Planning, Trust and Probate Law since 2006.