Do I Need to Change My Life Insurance Beneficiary After Divorce?

A Minnesota law that automatically revokes an ex-spouse as a designated beneficiary of a life insurance policy upon the dissolution of marriage was recently challenged as violating the Contracts Clause of the U.S. Constitution. The Contracts Clause broadly states that no state can pass a law that impairs the “Obligation of Contracts.” In an 8-1 decision, Justice Gorsuch being the lone dissenter, the Court upheld Minnesota’s law as constitutional. In the opinion written by Justice Kagan, the Court considered whether the law acted as a “substantial impairment” to a contract, and if it did, whether there was a “reasonable” way to advance a “significant and legitimate public interest.”

The Court only needed to address the first part of the two-pronged test, as Kagan outlined three primary reasons why the law does not substantially impair a contract. First, the law is designed to reflect the policyholder’s intent because, presumably, few people want to enrich their ex-spouse when they pass away. Second, the law is unlikely to upset the policyholder’s expectations at the time of the contract because the insured cannot reasonably rely on a beneficiary designation staying in place after a divorce. When purchasing life insurance, few people “give a thought about what will happen in the event of divorce.” Finally, a policyholder can easily change the effect of the law by simply sending a change-of-beneficiary form to their insurer.

So what does this mean for you? If you named your former spouse as a beneficiary in your life insurance policy before a divorce or annulment, that former spouse is automatically revoked as a beneficiary upon dissolution or annulment of your marriage. Instead, the insurance proceeds will go to your contingent beneficiary or estate. As the Supreme Court just made clear, the law can be applied retroactively, meaning it will occur even if the spouse was named as a beneficiary before the law was enacted in 2002. In the event that you wish for your former spouse to remain a beneficiary, simply send a change-of-beneficiary form to your insurer after your divorce.

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