Updating Beneficiaries When You Divorce
Reviewing who you’ve named as a beneficiary is a key part of the divorce process.
There are generally two kinds of beneficiaries. A primary beneficiary is first in line to receive an asset. A contingent beneficiary is next in line if the primary beneficiary has died or cannot receive the asset. It’s important to know that beneficiary designations usually take priority over what your will says.
When you’re married, your spouse is often listed as the primary beneficiary on many accounts and policies. After a divorce, that’s rarely what people intend—but it’s easy to forget to update the paperwork or to keep putting it off. Leaving old beneficiary designations in place can lead to outcomes you never wanted.
If you have children, you may want them to receive your assets instead. However, you generally can’t name minor children directly as beneficiaries. Children who are under 18 cannot legally manage inherited money or property. If a minor is named directly and receives an inheritance, the assets may have to go through probate so a court can appoint an adult to manage them. That process can be slow and expensive. For parents of minor children, setting up a trust and choosing a trustee to oversee the assets—at least until each child turns 18—is often a more practical approach.
Many divorce settlement agreements include language stating that each ex-spouse gives up any right to share in the other person’s estate at death, and that any existing wills are revoked or replaced. However, if there is a beneficiary designation still on file with a bank, insurance company, or retirement plan that names an ex-spouse, that designation may still control who receives the asset. The beneficiary form can override the settlement agreement or the will.
In some states, the law automatically removes a former spouse as a beneficiary or appointee on documents like wills, trusts, life insurance, and powers of attorney once the divorce is final. These “revocation upon divorce” rules are designed to fix oversights that happen when people are overwhelmed by the emotional and administrative burden of divorce. If you live in one of the 24 states (e.g. California, North Carolina and Maine) that do not automatically revoke an ex-spouse as beneficiary, your ex may still inherit assets and property if you don’t update your documents.
Certain states also use automatic temporary restraining orders (ATROs) during the divorce case. These can prevent either spouse from transferring assets, changing insurance coverage, or altering some legal documents while the case is pending. That can include restrictions on changing beneficiaries. In states without ATROs, you may be able to change your beneficiaries while the divorce is still in process. A key exception: plans covered by ERISA, such as many private employer 401(k) plans, pension plans, and ESOPs. For those types of plans, participants often must wait until the divorce is finalized before making beneficiary changes.
As a general rule, it’s wise to review both your primary and contingent beneficiaries after any major life event: marriage, divorce, the birth of a child or grandchild, retirement, or the death of someone close to you. Taking the time to update your beneficiary designations helps ensure that your money and property are passed on according to your wishes.
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