Life Insurance After Divorce
By Sarah Knapp
Life insurance is designed to provide an added level of protection and
security for your family and loved ones in the event of tragedy. Most
people make the beneficiaries of such policies their spouse or their children.
But what happens to those life insurance policies after a divorce?
A life insurance policy is a contract between the insurer and the policy
owner, and the policy owner generally has full authority to designate
whomever he or she chooses as the beneficiaries of the policy. Further,
the policy owner can often terminate the policy or change the beneficiaries
at any time, and many do after a separation or divorce.
However, if the insured individual has a child support or spousal support
obligation, the divorcing parties may want to keep that financial security
net in place. Domestic Relations Laws in Virginia allow the Court to require
that such policies and beneficiary designations be maintained in some
circumstances. Additionally, parties can agree to maintain certain life
insurance obligations through Settlement Agreements.
Under Virginia law, the court has the authority to order a policyholder
to maintain an existing life insurance policy and designate their minor
children (not the former spouse) as beneficiaries of that policy as part
of a child support order.
Recently, however, a new law was passed which extends that authority to
cases involving spousal support. The new law, VA Code Section 20-107.1:1,
will take effect on July 1, 2017, and allows the court to require the
maintenance of life insurance policies (private or employer provided),
as well as the beneficiaries (including the former spouse), that were
in existence during the marriage in cases where there is a spousal support award.
An important caveat, especially in Northern Virginia where there are many
federal employees and members of the military, is that the state courts
cannot restrict beneficiary designations for life insurance policies provided
pursuant to federal law. The Federal Employee Group Life Insurance (FEGLI)
and Servicemen’s Group Life Insurance (SEGLI) programs are employer
provided life insurance policies put into place as the result of laws
enacted by Congress. The language of those laws give the federal employee
and the service member the right to designate their beneficiaries and
change them at any time. The Courts have determined that because federal
law trumps state laws pursuant to the U.S. Constitution, state courts
cannot take away or restrict that right.
The result is that that Virginia courts cannot make any orders related
to FEGLI or SEGLI policies, nor can they enforce an agreement to maintain
these policies included in a Settlement Agreement. So, while parties can
agree that a party must name their former spouse or children as the beneficiaries
of their FEGLI or SEGLI policy, a Court could never enforce that obligation
if the party chooses not to honor that provision of their Settlement Agreement.