Automatic Revocation Upon Divorce
By Alynne Zielinski, MBA, CFP, CDFA, Manager, Financial Planning, Marcum Wealth
Today, more than 40 states have some type of “revocation upon divorce” statute that impacts beneficiaries listed on IRAs, bank accounts, insurance policies, trusts, and wills. Of these 40 states, 26 (see table below) automatically revoke a spouse as a beneficiary in the event of divorce. The assumption is that the decedent intended to remove the ex-spouse from the documents post-divorce but forgot to do so.
States with Automatic Revocation Upon Divorce Statutes
- New Jersey
- New Mexico
- New York
- North Dakota
- South Carolina
- South Dakota
Upon your death, your contingent beneficiaries and/or successor trustees become primary beneficiaries/trustees. If you do not have contingent beneficiaries or successor trustees listed, then your estate goes through probate.
The rules are different for 401(k) accounts, pensions, and other federal plans under the laws of the Employee Retirement Income Security Act (ERISA). In these cases, pre-divorce designations typically remain in place until you change them — no matter what state you live in.
If you live in one of the 26 states above, here’s what you should keep in mind upon divorce.
- Your ex-spouse will be removed as a beneficiary from life insurance, trusts, wills, IRAs, and brokerage and bank accounts.1
- Your ex-spouse will not be removed as a beneficiary from 401(k) plans, pensions, or any other plans governed by ERISA.
- If you want your ex-spouse to remain a beneficiary of life insurance, trusts, wills, IRAs, or brokerage or bank accounts, you will need to file new beneficiary paperwork or thoroughly draft a settlement stating that you wish for your ex-spouse to remain the beneficiary.
- It is important to have contingent beneficiaries as well as primary beneficiaries listed.
In certain circumstances, the parties don’t want an ex-spouse automatically revoked as a beneficiary upon divorce. Below are tips for circumventing any unexpected beneficiary changes. Again, laws differ by state so be sure you or your attorney understand your state’s revocation upon divorce law.
- For trusts, wills, IRAs, and brokerage and bank accounts:
- Add succinct terminology in the divorce decree stating that you are aware your ex-spouse is the primary beneficiary on the account and you wish to keep it that way; or
- After the divorce is finalized, file new beneficiary paperwork that lists your ex-spouse as the primary beneficiary.
- For life insurance policies:
- All life insurance policies, including term and group term, need to be uncovered in fact-finding. These policies typically go unnoticed as there is no associated cash value.
- Explicitly state who is awarded what policy in the settlement agreement. For example:
- Husband is awarded his Protective Life insurance policy, number 3030, and wife is to remain the beneficiary until the last child reaches age 18.
- Husband is awarded his Protective Life insurance policy, number 3030, and wife is divested as beneficiary of the policy.
- You may wish to change the ownership of the policy to your ex-spouse or, after the divorce is finalized, file new beneficiary paperwork that lists your ex-spouse as the primary beneficiary.
- If, after the divorce is finalized, you decide an ex-spouse will remain as the beneficiary on a life insurance policy, then you’ll need to update beneficiary paperwork and file a written stipulation with the court.
- For ERISA plans:
- Do nothing. Since these are protected from revocation upon divorce laws, any beneficiaries you have will remain in place.
Revocation upon divorce statutes are meant to protect what might simply be an oversight after dealing with the emotional trauma of divorce. If you live in one of the 24 states (those states not in the table above) that do not automatically revoke an ex-spouse as a beneficiary upon divorce, your assets and property may be dispersed to the wrong party.
A best practice is to review all beneficiaries after any life event: marriage, divorce, the birth of children or grandchildren, retirement, or death of a loved one. Doing so ensures your intent is carried out after death regardless of your state’s stance on revocation upon divorce.
- Laws in each of the 26 states differ
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