Divorce can bring many changes, both emotional and financial. One matter that often gets overlooked is life insurance. While it might not be the first thing on your mind, understanding how divorce affects your life insurance beneficiary is important. North Carolina law does not automatically remove a former spouse from a life insurance policy, which means your ex could still receive benefits unless you make updates.
Divorce Does Not Automatically Change a Life Insurance Beneficiary
In North Carolina, divorce does not change who is listed as the beneficiary on your life insurance. Even if your former spouse is no longer part of your life, they will remain the beneficiary until you take steps to remove or replace them. This differs from other legal documents like Wills or Trusts, which may have specific rules that modify provisions in favor of a former spouse.
Because the beneficiary designation remains unless you act, it is important to review your life insurance policy during or after the divorce process. You can update your beneficiary directly with the insurance company, or you can address it in your divorce agreement to ensure both parties acknowledge the change.
Reviewing Estate Planning After Divorce
Divorce and separation also affect estate planning documents. A separation by itself does not change your Will or Trust. Without a separation agreement, a spouse may retain certain legal rights, such as the Year’s Allowance, Intestate Succession, and the Elective Share. These rights exist regardless of whether your Will or Trust names them as a beneficiary.
Even with a separation agreement, it is a good idea to update estate planning documents. Changing your Will or Trust to remove your former spouse provides added protection. In some cases, provisions in a Will or Trust that reference a former spouse may still apply, creating gaps that could lead to unintended inheritance outcomes.
Life Insurance as a Marital Asset
Life insurance policies can be treated differently depending on the type of policy. Term life insurance, which does not have cash value, is generally considered separate property. The policyholder can decide whether to remove an ex-spouse as a beneficiary. Whole life insurance, on the other hand, often carries a cash value and may be treated as a marital asset. Policies like this are subject to equitable distribution under North Carolina law and should be addressed during the divorce settlement.
Because whole life policies may have value that counts toward marital assets, discussing how to handle them during divorce is important. This ensures both parties understand who keeps what and avoids confusion later.
Powers of Attorney and Divorce
Divorce can also affect powers of attorney. A financial power of attorney does not end automatically with separation, but it does terminate upon divorce between the principal and the agent. Health care powers of attorney that name a spouse are also revoked upon divorce. This makes it important to review and update these documents to prevent a former spouse from having authority over finances or health decisions.
Effects of Divorce on Wills and Trusts
Divorce revokes provisions in favor of a former spouse in Wills and revocable trusts. In Wills, North Carolina law generally treats provisions as if the former spouse has died, but older Wills may not apply this rule correctly until a statutory revision effective March 1, 2024. Revocable trusts follow a similar rule, but joint trusts created by both spouses may need to be revoked or defunded to prevent continued access to assets. Irrevocable trusts are not affected, so any former spouse designations there remain in place unless the trust allows changes.
Updating Beneficiary Designations for Other Assets
Life insurance is not the only asset affected by divorce. Retirement accounts, bank accounts, and other investments often have beneficiary designations that are not automatically updated by divorce. In North Carolina, real property held as tenants-by-the-entirety changes to tenants-in-common, but most joint accounts remain accessible to the former spouse. Updating all beneficiary designations is necessary to ensure your wishes are followed.
Taking Action After Divorce
Going through a divorce involves many legal and financial changes. Reviewing your life insurance policies, estate planning documents, powers of attorney, and beneficiary designations can prevent problems later. Ensuring that your former spouse is removed where appropriate protects both your intentions and your loved ones’ interests.
If you are experiencing a divorce and have questions about life insurance or estate planning, contacting a Wilmington estate attorney experienced in family and estate law can help you take the right steps. A consultation with Salines-Mondello Law Firm allows you to review your documents, make updates, and understand your options.