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Home > Cautionary Tale – Insurance Policy Beneficiaries

Cautionary Tale – Insurance Policy Beneficiaries

June 22, 2016

By John F. McKenna, Esq.

Under Pennsylvania Law when a citizen of this Commonwealth designates his or her spouse as beneficiary of a life insurance policy, an annuity contract, pension or profit sharing plan, or other contractual arrangement and is divorced from that spouse at the time of his or her death, any designation in favor of the former spouse shall be construed as if the former spouse had predeceased the individual. In other words, if you are divorced and you had forgotten to change your beneficiary designation form, your former spouse will not get the proceeds of your insurance policy by operation of this statute. However, there is a problem.

The United States Supreme Court in Kennedy v. Plan Administrator for DuPont Savings and Investment Plan, 555 U.S. 285 (2009), held that employee benefit Plan Administrators are obligated to act in accordance with the documents and instruments governing the Plan and, therefore, the Plan Administrators are to go with the designation in the Plan, and not the divorce Decree. The Pennsylvania Supreme Court in a case called In Re: Estate of Sauers, 32 A.3d 1241 (Pa. 2011) held that the Employee Retirement Income Security Act of 1974 (“ERISA”), preempts the Pennsylvania statute and the former spouse “gets the money”.

This, certainly, is a harsh result. Our legislators clearly understood that people just plain forget to change their beneficiary designations on their plans and wanted to make sure that an unjust result did not occur. Our United States Supreme Court clearly did not want the insurance company to be stuck in the middle of these divorce matters and decided that the employee benefit Plan Administrators, should have the easier, clearer task.

Therefore, the lesson here is to make sure that after you are divorced, or if some other event takes place wherein you have a death benefit from some Plan, make sure you change the beneficiary designation to fit your current situation.

However, there is a wrinkle concerning Property Settlement Agreements.

In In Re: Estate of David J. Wheeler, 64 Ches.Co. Rep. 172 (2016), the Court, while recognizing that Kennedy and Sauers both hold for preemption and require giving the insurance proceeds to the former spouse, nevertheless, that former spouse can waive their entitlement if they execute a Property Settlement Agreement that waives and releases any and all right to receive insurance proceeds.  This was a matter that I handled and, luckily, our Decedent’s Property Settlement Agreement which waived her right to the proceeds was upheld.  There was a bit of luck on our part that the Property Settlement Agreement existed.  If not, the former spouse would have received the entire $342,000 proceeds.

Therefore, please remember: to avoid heartache, expense and an unfair result, make sure you keep an eye on your beneficiary designations on any and all of your retirement plans or life insurance policies.


john_mcKenna_wJohn heads the firm’s Trust and Estate Litigation Group. He represents clients in all estate and trust matters, complex guardianships, will contests, trust termination and modifications, corporate disputes, contract interpretation, real estate disputes, consumer protection,  and broker liability litigation. John can be reached at [email protected] or 610-840-0215.