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ERISA Protection for Your Family? Maybe.

October 01, 2013

It happens. An employee is provided a valuable insurance on their life through their employer’s benefit plan. They designated their spouse, by name, as the beneficiary in the case of their death. The marriage later falls apart and as part of the divorce the spouse signs an agreement giving up any right to the insurance proceeds. In fact, the agreement is approved by the court and incorporated into the divorce decree so it can be enforced by the court.

On with life, excelling at work, finding a spouse and starting a family. Life is good. But, when the employee dies who gets the insurance proceeds? The current spouse who has the children to raise and funeral expenses to pay or the former spouse who is long gone after giving up all rights to the insurance? The former spouse would get the money and there is nothing the current spouse could do to prevent it.

The simple divorce decree wherein the former spouse gave up insurance rights does not prevent the insurance company from paying the money to him/her. The reason is ERISA- federal law that requires insurance companies under this circumstance to pay the person named as beneficiary even if that person has signed a court approved document giving up any right to the money.

The easiest way to prevent this result is to be sure that the employer and insurance company are notified of a change in beneficiary. They have forms available. Failing that change, the insurance company is not going to try to figure out what the now deceased employee really wanted–even in the face of a clear divorce decree that apparently resolves the issue. The insurer must pay proceeds to the NAMED BENEFICIARY.

Virginia’s attempt to fix the problem by enacting a law that automatically voids the former spouse as the beneficiary in the event of divorce has been ruled to have no effect on ERISA controlled benefits. The widow may have a legal claim directly against the former spouse for the insurance money but, that takes time and there is a risk that the money will be spent before the court can get to it. Better to not be in this position in the first place.

The other way to avoid this calamity is to be sure the divorce attorney is astute enough to get a Qualified Domestic Relations Order (QDRO) in place. Even ERISA acknowledges them.

****Legal notes are not legal advice. Because legal problems are factually intensive, the reader must always consult their counsel before acting on any legal matter.