Everything You Need to Know About Beneficiary Divorce

Divorce is unfortunately very common in the world. In the USA alone in 2022, there were an estimated 673,989 divorces and annulments from 45 of the US states according to Forbes.com. This means divorce is at a rate of 6.2 of every 1,000 people. 

One term though that isn’t as commonly known is called beneficiary divorce. This refers to the financial and legal implications around a spouse as a designated beneficiary of things like retirement accounts, life insurance policies, and wills during the divorce and also after. In this article, we’ll discuss everything you need to know about beneficiary divorce so you’re aware of what to expect if you’re in this situation. 

Key Information to Know About Beneficiary Divorce

When going through beneficiary divorce, a spouse may gain a great deal if they’ve been designated as beneficiary of insurance policies or retirement funds. If one spouse decides to suddenly change beneficiary designations after the divorce has started, it can cause problems with lengthy disputes and major conflicts in the distribution of assets. 

How beneficiaries are treated during a divorce is dictated by the state you’re living in. Some states will allow beneficiaries to stay in place during a divorce while others tend to automatically revoke it. In some states, they recognise that all martial assets are jointly owned while in other states assets are divided fairly but not always equally. 

What Is the Impact of Beneficiary Divorce On Proceedings?

When it comes to the impact on divorce proceedings, a beneficiary setup may affect the following areas: 

• The spouse involved in the divorce needs to be forthcoming with all the assets and accounts they own, along with the beneficiary designations of each one during the proceeding. 
• In some cases manipulation may occur by a spouse in order to lessen the blow of the outcome of the proceedings. 
• If disputes can’t be resolved in a peaceful manner then litigation may be required whether both parties agree or not to settle the conflict. 

Steps to Take During a Beneficiary Divorce
When you’re about to go through a divorce, the steps on protecting assets during a beneficiary divorce can include but aren’t limited to: 

• Start by reviewing existing beneficiaries and which accounts and policies they’re designated to. 
• Decide whether any designations may conflict during the divorce. 
• Find an attorney which specializes in beneficiary divorces and to help improve the outcome when dividing assets. 
• You can gain advice from a financial advisor to re-evaluate financial assets and financial strategies based on your new circumstances. 
• After the divorce, update your beneficiary designations right away to avoid any future distributions or disagreements. 

After the Divorce Has Finalized 

After the divorce there’s a few things you need to do to make sure everything is up to date.  Revise your wills and any trusts you have to make sure they go to a new person in the event of your death. 

Power of attorney and health directives should be updated so your ex-spouse isn’t in control if something happens. In addition, remove your ex from any official documents and other assets moving forward so you can cut ties completely. 

Endnote 

A beneficiary divorce can be a little bit more complicated than the normal variety. If you find yourself in this situation, it’s important to seek proper legal advice to ensure the outcome is satisfactory for both parties involved.