Impact of divorce on assets such as life insurance which pass outside probate

In Florida, as in many states, certain assets belonging to a deceased person pass outside of probate. A few examples are life insurance, annuities, IRA's and 401K's. What each of these have in common is that the owner can designate a beneficiary so that upon the owner's or the insured's death, the asset passes to the beneficiary and is not involved in the decedent's probate. This is good for a number of reasons, including saving significant time and expense caused by undergoing probate.

What happens if the owner of an asset which passes outside probate names their spouse as beneficiary and then they get a divorce? Florida law now provides that for decedents dying on or after July 1, 2012, a divorce may invalidate a beneficiary designation naming the spouse as beneficiary. In effect, the former spouse may not be entitled to the asset.

So, by way of example, consider as situation where Bob names his wife, Sally, as beneficiary on a life insurance policy insuring Bob's life. A few years later, Bob and Sally get divorced but Bob never changes the beneficiary on his life policy. In other words, Sally is still the named beneficiary when Bob dies. Does Sally receive the death benefits of the policy? In certain instances, the answer is "no."

Section 732.703, Fla. Stat. provides in pertinent part:

A designation made by or on behalf of the decedent providing for the payment or transfer at death of an interest in an asset to or for the benefit of the decedent's former spouse is void as of the time the decedent's marriage was judicially dissolved or declared invalid by court order prior to the decedent's death, if the designation was made prior to the dissolution or court order. The decedent's interest in the asset shall pass as if the decedent's former spouse predeceased the decedent.

In the example of Bob and Sally, unless some exception applies, the life insurance policy would be treated as if Sally died before Bob and would therefore not be paid to Sally. Instead, the policy would be paid to whoever is next in line to receive the policy benefits.

Section 732.703 does have some important exceptions. One of the most common exceptions is where the order of dissolution of marriage orders that the decedent acquire or maintain the asset for the benefit of a former spouse or children of the marriage, payable upon the death of the decedent either outright or in trust. Applying this exception to Bob and Sally, if the divorce court ordered Bob to pay alimony to Sally and to secure that payment by maintaining life insurance with Sally as a beneficiary, then Sally would receive the death benefits even though they got divorced.

Section 732.703 has other significant exceptions so it is advisable both in the context of dissolution of marriage and of post-divorce estate planning to consult an experienced attorney.

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