What? My Ex Inherits My Life Insurance Proceeds?!!!

October 19th, 2016

Ohio Revised Code 5815.33 (formerly R.C. 1339.63) states that when a marriage terminates, then as a matter of law, prior beneficiary designations of ex-spouses are revoked. As an example, if I designate my spouse as beneficiary of my life insurance while I’m alive and married, and then we get a divorce, my (ex)wife is automatically revoked as my beneficiary. She is then treated as if she died first. Although most consider this a positive development and the legislative intent was clearly to prohibit ex-spouses from benefitting upon the death of a former spouse, there are plenty of loopholes.

The biggest problem with the statute is that for policies taken out before the date the statute went into effect (May 31, 1990), then the statute does not apply. Because of a constitutional problem impairing the obligation of contracts, designation of beneficiaries on life insurance contracts before May 31, 1990 means that an ex-spouse may receive life insurance (or IRA, 401(k) or other asset) proceeds upon death should the decedent-spouse fail to remove the ex-spouse as beneficiary after a divorce. That position was affirmed by the Ohio Supreme Court in In re Estate of Holycross, 112 Ohio St.3d 203, 2007-Ohio-1, 858 N.E.2d 805.

One protection that saves the problem identified above, is ensuring that a divorce decree or separation agreement specifically prohibits an ex-spouse from claiming insurance proceeds. The danger is that if specific policies aren’t identified with specific language showing the surviving (ex-spouse) waived the right to collect proceeds, you run the risk of the wrong person inheriting. Thus when terms of a separation agreement are confusing or ambiguous, a trial court is afforded discretion in clarifying those terms and may resolve disputes by considering not only the parties’ intent regarding those terms, but also the equities involved in each case. Rohrbacher v. Rohrbacher, 83 Ohio App.3d 569; 615 N.E.2d 338 (6th Dist.); Robinson v. Rodi, 129 Ohio App.3d 550, 718 N.E.2d 504 (7th Dist.) One normally does not want to risk a court interpreting the decedent’s original intent on who was supposed to receive insurance proceeds.

Despite the view by some that the result is draconian in awarding ex-spouses money, the result is not unusual, especially depending on the type of insurance and whether federal or state law applies. See, e.g., Metro. Life Ins. Co. v. Pressley, 82 F.3d 126, 130 (6th Cir. 1996) (holding that plan documents listing an ex-wife as beneficiary controlled rather than a divorce decree containing a "broad waiver of rights"); Unicare Life & Health Ins. Co. v. Craig, 157 F. App'x 787, 792 (6th Cir. 2005) (holding that husband was proper beneficiary because he was still listed on plan documents, even though there was "little doubt" that decedent intended to change her beneficiary from her second husband to her daughters); Hendon v. E.I. DuPont De Nemours & Co., 6th Cir. No. 96-6233, 1998 U.S. App. LEXIS 7573 (Apr. 13, 1998) (holding that ex-husband was proper beneficiary despite a dissolution agreement containing "a fairly explicit waiver of the plan benefits").

The only sure thing to do is specifically designate beneficiaries of life insurance policies upon the occurrence of any major life changing event (death, divorce, birth, marriage, etc.). Your financial advisor and life insurance agent should assist you in maintaining current beneficiary designations.

Should you have a question about whether you may be entitled to proceeds upon the death of another, do not hesitate to contact us for a free consultation.