Some states have laws that automatically revoke beneficiary designations to ex-spouses once the divorces are final, unless the policy is part of a divorce agreement. If the insured person dies and the ex-spouse is still named as beneficiary, the proceeds go to the secondary beneficiary; if there is no secondary beneficiary, they generally go into the deceased's estate. This protects current spouses from oversights.
But those state laws are pre-empted if the coverage is through an employer-sponsored plan governed by federal law.
That point was underlined in a June 3, 2013, U.S Supreme Court decision, which ruled in favor of an ex-spouse over a widow in such a dispute.
Warren Hillman had a life insurance policy through work as a federal government employee worth $124,558.03 when he died in 2008 at age 66. But the beneficiary on the policy was not his wife, Jacqueline Hillman of Virginia, but rather his ex-wife, Judy Maretta, whom he divorced 10 years earlier. Hillman had forgotten to update the beneficiary.Maretta filed a claim for the death benefit and collected the proceeds, and Jacqueline Hillman sued. Virginia law automatically revokes beneficiary designations to ex-spouses and lets the family of the deceased sue if an ex-spouse collects the proceeds as the named beneficiary. The Federal Employees' Group Life Insurance Act, which governs Hillman's group life policy, states that the death benefit must be paid to the named beneficiary. The Supreme Court ruled that the federal law pre-empts Virginia's law. "It's a very significant case," says attorney Daniel Ruttenberg, a partner at SmolenPlevy in Vienna, Va., who argued the case before the Supreme Court for Jacqueline Hillman. Federal Employees' Group Life Insurance "is the largest life insurance program by far in the world, so it affects millions of individuals." The case emphasizes the need to review and update beneficiary designations after major life changes. Yet many people, like Hillman, neglect to do so.