It is always important to make sure the beneficiary designation for Life Insurance, Annuities and Retirement Accounts are current, especially after a significant event, such as, disability, divorce or birth. It is even more important to make sure the beneficiary designations are current for Federally sponsored assets, such as Federal Employees Group Life Insurance.
While state laws may provide some protection if you have a major event like a divorce and you fail to name a new beneficiary before you die the same is not always true if the beneficiary designation is for Federally sponsored assets.
If you own a Life Insurance policy and name your spouse as the beneficiary and then subsequently get divorced the ex-spouse is treated under Virginia law as having been removed as the beneficiary. However, if you want your ex-spouse to remain the beneficiary after the divorce then you need to submit a new beneficiary designation form to the insurance company after the divorce becomes final.
Unlike Virginia Law regarding a beneficiary designation naming an ex-spouse, federal law does not always have the same results. In the recent case of Vassil v. Office of Pers. Mgmt., et.al., Case No 16-13176 (E.D. Mich. Jan 31, 2017), the federal court held that state law did not control with regard to an ex-spouse named as beneficiary in a Federal Employees Group Life Insurance Program. In this case, the federal employee had named his then spouse as beneficiary of his life insurance policy. After their divorce the federal employee failed to change the beneficiary designation before he died. The decedent’s children asked the Office of Personal Management (OPM) to pay the death benefits to them and not the ex-spouse. OPM declined to pay the proceeds to the children and they sued because under state law the ex-spouse would not be considered a beneficiary of the life insurance policy.
The Federal Employees Group Life Insurance Act expressly preempts inconsistent state laws that relate to group life insurance. Under the Act the benefits must be paid to the named beneficiary, including an ex-spouse unless the terms of the divorce decree, annulment or legal separation provides otherwise and the order is recorded by the participant’s employing agency before the participant’s death.
All current and former federal employees should ensure that their federal life insurance beneficiary designations are up to date. A federal employee who does not want their ex-spouse to receive a share of the employee’s federal life insurance benefits after divorce must expressly address that desire in the divorce decree or related court order, and update their beneficiary designation form.
In addition, anyone that owns an asset with a beneficiary designation, even if not a federally sponsored plan/asset, should always make sure, at least on an annual basis as well as immediately after a major event, like divorce, marriage, death or birth, that their beneficiary designations are current and on file with the applicable company/agency.
The most common form of assets with a beneficiary designation are life insurance, annuities, 401k, 403(b) and Individual Retirement Accounts (IRA).
If you need assistance with your beneficiary designation forms please call Midgett Preti Olansen PC at 757-687-8888.