Divorce Automatically Revokes Ex-Spouse as Beneficiary of Life Insurance Policy

Earlier this month, the New Jersey Appellate Division, in Hadfield v. Lillo, held that a decedent’s ex-spouse was not entitled to the proceeds of a life insurance policy where the decedent, after obtaining a divorce, failed to change the beneficiary designation of a life insurance policy on his life. This case represents a fairly straightforward interpretation of New Jersey’s “revocation on divorce” statute.

NJSA 3B:3-14, amended in 2005, provides that a divorce revokes any revocable dispositions made by a divorced individual to his or her former spouse in a governing instrument (which includes a life insurance policy), except as otherwise expressly provided. Prior to the amendment, the statute simply provided that if after executing a will the testator divorces, the divorce revokes any dispositions of property to the ex-spouse under the decedent’s will only.

The decedent in Hadfield was divorced prior to and died after the 2005 amendment. The ex-spouse argued that the amended version of the statute should not apply because it was not in effect at the time of the divorce. The court rejected this argument and retroactively applied the amended statute after reasoning the ex-spouse had no vested right in the insurance since the decedent could have changed the beneficiary designation at any time.

The law is similar in New York. Under NYEPTL 5-1.4, a divorce revokes the former spouse’s rights not only under a will but also by beneficiary designation of an insurance policy. The statute, by way of recent amendment, specifically references the beneficiary designation of a life insurance policy.

A shortcoming to the statutes is that life insurance frequently is owned by a spouse’s irrevocable insurance trust and the irrevocable trust is designated as the beneficiary. The statutes highlighted above deal with the revocation of revocable dispositions made by a divorced individual. As a result, absent specific language in an irrevocable trust to the contrary, a divorce will not revoke the designation of the irrevocable trust as the beneficiary and will not terminate an ex-spouse’s rights under the trust. It is also important to note that the state level revocation upon divorce statutes do not apply to ERISA governed retirement plans, such as IRAs, 401(k)’s and other employer-provided plans, a rule which adds confusion to this area.

A life changing event such as a divorce should always result in an extensive review of one’s estate plan.