How Does Insurance Work In A Divorce?

Unfortunately, this is an issue that has to be addressed too often.  An article was written in April 2019, in Forbes, that addresses this issue.  The title of the article is “Insurance Issues To Consider In A Divorce.”

Most of the time and fighting and arguing in divorce situations is directed toward emotional, financial, and child custody issues.  What can be lost in the mix is, what is going to happen regarding insurance policies.  Usually the law of the state where the divorce is taking place deals with all these issues.

This Blog deals with Texas and when it comes to divorces and the issues surrounding divorces, the Texas Family Code is the source of information for how Texas Courts address these issues and also, insurance policies.

There are situations where properly handling the home and auto policies is vital. But the most common types of insurance issues arise from health insurance and life insurance.

A federal program known as The Consolidated Omnibus Budget Reconciliation Act (COBRA) helps spouses on the health insurance front.  However, there are problems /limitations on how must COBRA is able to help.

The law in Texas regarding life insurance is what this Blog is trying to focus on.

Texas has a specific statute dealing with what happens with life insurance policies in a divorce.  This is Texas Family Code, Section 9.301.  So what does this statute tell us?

The Texas Family Code says that if a decree of divorce is rendered after an insured has designated the insured’s spouse as a beneficiary under a life insurance policy in force at the time the divorce decree is rendered, any provision in the policy in favor of the insured’s spouse is not effective unless certain other things have occurred.

One, the divorce decree itself, designates the insured’s former spouse as the beneficiary.

Two, the insured person re-designates the insured’s former spouse as the beneficiary.

Three, the former spouse is designated to receive the proceeds in trust for, on behalf of, or for the benefit of a child or a dependent of either former spouse.

Thus, if a designation is not effective as set forth above, the policy proceeds are payable to the alternative beneficiary or, if there is not a named alternative beneficiary, then to the estate of the insured.

If the insurance company pays the insurance proceeds improperly, it is liable for the payment of the proceeds to the person or estate as stated in the preceding paragraph.