Can a former spouse receive life insurance benefits in Texas?

Can a former spouse receive life insurance benefits as the designated beneficiary? The answer is . . . maybe. It depends on whether Texas or federal law applies to the policy. And the circumstances surrounding the designation.

Texas Family Code Section 9.301 governs pre-divorce designations in favor of a former spouse:

(a) If a decree of divorce or annulment is rendered after an insured has designated the insured's spouse as a beneficiary under a life insurance policy in force at the time of rendition, a provision in the policy in favor of the insured's former spouse is not effective unless:

(1) the decree designates the insured's former spouse as the beneficiary;

(2) the insured redesignates the former spouse as the beneficiary after rendition of the decree;  or

(3) 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.

(b) If a designation is not effective under Subsection (a), the proceeds of the policy are payable to the named alternative beneficiary or, if there is not a named alternative beneficiary, to the estate of the insured.

(c) An insurer who pays the proceeds of a life insurance policy issued by the insurer to the beneficiary under a designation that is not effective under Subsection (a) is liable for payment of the proceeds to the person or estate provided by Subsection (b) only if:

(1) before payment of the proceeds to the designated beneficiary, the insurer receives written notice at the home office of the insurer from an interested person that the designation is not effective under Subsection (a);  and

(2) the insurer has not interpleaded the proceeds into the registry of a court of competent jurisdiction in accordance with the Texas Rules of Civil Procedure.

The public policy behind that statute is a presumption that the owner of the policy would not want to leave the benefits to their former spouse. The statute is generally strictly construed by the courts, even though it is based on a presumption that the policy owner simply forgot to change the designation after the divorce.

However, that statue does not apply to life insurance policies governed by federal law. Or generally to policies in which the former spouse is the owner of the policy. Therefore, it is important to consult with a Texas lawyer who has substantial experience in this area of the law. If the insurance company receives a contest, even if not well founded, it will typically file an interpleader lawsuit.