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Protecting Your Beneficiaries

Whenever you experience a major life change or event – whether it’s the birth of a child, loss of an immediate family member, or divorce – it’s important to know the steps you need to take to keep your beneficiaries protected so that the ones you love most are taken care of when you pass away.

With divorce in particular, it’s important to note that while the legal proceedings of a marital separation are usually quite comprehensive, they may not be enough to ensure the correct delivery of your assets to your beneficiaries.

What is a Beneficiary?

A beneficiary is the designated individual (or individuals) that will receive the assets that are either created or transferred in the event of your death. Life insurance, retirement plans, annuities, and transfer on death (TOD) bank and brokerage accounts are all set up with a designated beneficiary that will receive these assets.

When you are married, it makes perfect sense to name your spouse as the primary beneficiary for all of these assets. But when it comes to divorce and re-designating your beneficiaries, it’s important that you take all of the steps necessary to ensure that your estate is delivered correctly.

Can’t I just change my will?

Not necessarily. In many ways, beneficiary designation supersedes what is written in your will and other documents that provide instructions for your estate after your passing. That means that if you change your will but fail to update your beneficiaries, that your ex-spouse could still receive part of all of the designated assets. That’s why it’s important to specify new beneficiaries for each asset.

When can I change my beneficiaries?

In most states, once a separation has begun, beneficiary designations cannot be updated until the legal proceedings have concluded and the divorce is finalized. That said, once you’re legally permitted to do so, it’s important to change your beneficiaries immediately, because leaving it undone can be a costly mistake for you and your loved ones.

In some cases, states have begun to enact laws to moderate this practice – giving insurance companies and other benefit providers the latitude to examine the deceased’s marital status and current relationship to the existing beneficiaries. Though, in some ways, it is troubling that these laws also provide various entities with the ability to second-guess your wishes after death.

It’s also important to note that some benefit policies – especially certain retirement accounts with a designated beneficiary – require the co-signature of an ex-spouse as a waiver to complete a benefit change. It’s important to be aware during and after your divorce proceedings what documentation you will need to manage the beneficiaries for each and every one of your policies and assets. Neglecting this step could cause significant legal headaches and lost time for your intended beneficiaries.

About the Author

Richard Austin
Richard Austin