ERISA LAW BLOG

Do Divorce Orders Preempt ERISA Life Insurance Beneficiary Designations?

In the last year or so, I have had clients with this question. The short answer is most likely no.   The reasoning is twofold.

First, ERISA requires that insurance company’s pay out benefits consistent with the terms of the plan. Most life insurance policies state that life insurance benefits will be paid to the named beneficiary. If the named beneficiary is the former spouse, then the insurance company has a duty to pay out the life insurance benefits to that individual. So, essentially, the insurance company is protecting itself from litigation by the named beneficiary.

Second, it is an issue of hierarchy. Divorce decrees and orders are governed by state law. ERISA is a federal law. Therefore, in essence, an ERISA beneficiary designation “trumps” a state law divorce decree. Courts have ruled that even if there is a divorce decree stating a former spouse should be removed as a named beneficiary, that does not invalidate the ERISA beneficiary designation naming that former spouse as beneficiary. In fact, as noted above, courts have determined that insurance companies have the duty, under ERISA, to pay the life insurance benefits to the named beneficiary.

The next obvious question would be whether or not the new spouse is just “left holding the bag” so to speak and is completely without options for recovering any of the life insurance benefits. The answer, in true lawyer speak, is “it depends.” There may be state law causes of action that the new spouse can take against the current spouse to recover some or all of the life insurance proceeds that were wrongfully paid out.

The takeaway from all of this is that if you or your spouse have a divorce order that states that a former spouse is no longer entitled to life insurance benefits (or any other benefits) that require a named beneficiary, make sure you contact your human resources department to request the necessary change of beneficiary forms.

If you have a denied life insurance, health insurance, short term or long term disability claim, or any other employee benefits, please do not hesitate to contact me at 864-242-6200 or llouzri@fosterfoster.com.

Read more Do I Need an Attorney to Appeal the Denial of My Disability Benefits?