23 Nov Who gets this life insurance after a divorced person dies?

Q. My parents divorced in 1982. Our father was completely absent and mom raised her three kids alone. She died in 1993. We were 19, 18 and 12 and moved in with our grandparents. Fast forward to 2014, when we received a letter from New York Life addressed to my father. It turns out he was the beneficiary for a life insurance policy on my mom. We ignored it but since learned that he cashed out the policy. We’ve since learned he has Harley’s for him and his girlfriend, a truck, a boat, a home and more. I’ve heard some states automatically revoke a divorced spouse from being a beneficiary. Should that have happened here?
— Confused

A. We’re very sorry for your loss and the estranged relationship you have with your father.

It’s complicated.

In general, the person listed as the beneficiary on a life insurance policy is entitled to receive the proceeds, Jerry Lynch, a certified financial planner with JFL Total Wealth Management in Boonton.

And in many states, after a divorce, the spouse is required to maintain insurance to protect the kids and ex-spouse in the event of a premature death, at least for a certain period, he said.

Now in New Jersey, under N.J.S.A. 3B:3-14, an ex-spouse is automatically revoked in the result of a divorce.

It says the beneficiary status is revoked unless the former spouse’s right is expressly preserved via “a governing instrument, a court order, or a contract relating to the division of the marital estate made between the divorced individuals before or after the marriage,”

So to figure out the situation with your dad, you need to know what the divorce agreement says, Lynch said.

Let’s talk estate planning for a moment.

Most major assets do not go through a will and the normal probate process, he said. That’s why it’s extremely important that special care is used to make sure these assets go to the correct people.

Lynch offered these examples:

Property is often owned jointly when married, he said.

“The wording you generally see is JTWROS — joint tenants with rights of survivorship — which means if the wife dies, the husband automatically gets the property, and it avoids probate,” Lynch said.

Then there are assets like IRAs and 401(k) plans. These have beneficiary designations that dictate who will get the money and they avoid probate, he said.
Same for life insurance, which has beneficiary designations that dictate who will get the money. It also avoids probate.

“It is incredibly important if you get divorced, you look and see how these assets are titled and the beneficiary wording if applicable to avoid these issues,” he said. “ It happens a lot more than you think, and the consequences are devastating financially and emotionally.”

Lynch said the life insurance company wouldn’t know your parents divorced unless your parents notified it.

“I am not sure what their liability is here as if they were never notified about the divorce, then it would be hard to prove they did something wrong,” Lynch said, noting you should speak to an attorney about the issue.

Lynch said one other thing concerned him. You mentioned your dad has a bunch of depreciating assets such as the vehicles.

If you went after him for the money — and you didn’t say how much the policy was worth — would you get anywhere?

“My question is how much was the policy for, and does he have any assets that are substantial enough to pay the obligation? Probably not,” Lynch said.

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This story was originally published on Nov. 23, 2021.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.