Jessica Caruthers, Attorney at Law
In more than one recent probate case, I have faced scenarios similar to the one described below:
Oklahoma resident Laura died in 2012, and her estate is being probated. Laura is survived by her husband, James, and an adult daughter from a prior marriage, Alice. During Laura’s first marriage, in 1990, she purchased a life insurance policy with a death benefit of $500,000 that named her husband, Steven, as the beneficiary. When Laura and Steven divorced in 1993, she did not change the beneficiary designation. Now, Laura’s daughter Alice and Laura’s husband James are disputing who is entitled to receive the life insurance proceeds. Alice believes Steven or she should receive the policy limits. James believes he should receive the entire amount as Laura’s spouse at the time of her death.
In fact, they’re both likely wrong. Okla. Stat. tit. 15, §178 governs this situation. The statute, effective for life insurance policies purchased on or after November 1, 1987, states as follows: “If, after entering into a written contract in which a beneficiary is designated or provision is made for the payment of any death benefit …, the party to the contract with the power to designate the beneficiary … dies after being divorced from the person designated as the beneficiary or named to receive such death benefit, all provisions in the contract in favor of the decedent’s former spouse are thereby revoked … “
The statute affects life insurance policies, annuities, retirement benefits, security registrations, or other accounts with a death benefit. It means that if someone names their spouse as the beneficiary upon his or her death, then the parties are divorced, the beneficiary designation is voided. The law presumes, in effect, that if a person has divorced his or her spouse, that person would not want to leave a life insurance policy to the ex-spouse. The law attempts to correct a presumed failure to change the beneficiary designation.
There are exceptions to the statute’s application. It won’t apply if a divorce decree is later vacated. It won’t apply if the former spouses are remarried at the time of death. Parties can choose to specify a different arrangement in their divorce decree if the beneficiary designation should remain in place, or the life insurance policy itself can contain a provision expressing an intention to avoid the effect of the statute. Finally, a policyholder can purchase a policy or change the beneficiary after a divorce and name his or her former spouse as the beneficiary. Someone may wish to do this if, for example, the divorced spouse would be caring for the parties’ minor children.
In the scenario above, then, Laura’s designation of Steven, her ex-husband, as beneficiary was revoked upon their divorce. The policy proceeds became an asset belong to Laura’s estate, and her heirs will have to probate her estate. If she had a will, its terms will determine who receives the money. If not, Oklahoma’s intestate statutes will determine how the money is divided between Alice and James. However, this money may be used to pay for court costs and attorney fees associated with the probate, and it may be applied to taxes and creditors owed by Laura’s estate.
Best practice – review your beneficiary designations regularly. If you get divorced, change your beneficiaries. Even if you wish for your ex-spouse to be the beneficiary, you need to designate that in writing to the insurance company after the divorce is final or include it in the divorce decree.
For additional information, contact attorney Jessica L. Caruthers of Outhier & Caruthers, PLLC, at 580-234-6300 or firstname.lastname@example.org.