Account designations in favor of an ex-spouse

For decades, Texas law has provided that a designation of a spouse as a beneficiary in a life insurance policy or a will is rendered void by a divorce. The exceptions are limited. The provision regarding life insurance policies is found in Section 9.301 of the Texas Family Code. The provision regarding wills is found in Section 123.001 of the Texas Estates Code. These provisions often arise in my life insurance beneficiary dispute practice and in estate disputes. Until recently, there was no similar provision regarding beneficiary designations for multi-party financial accounts. In 2015, the Texas legislature added Texas Estates Code § 123.151, dealing with the effect of divorce on multi-party account designations. It provides:

(b) If, after a decedent designates a spouse or a relative of a spouse who is not a relative of the decedent as a P.O.D. payee or beneficiary, including alternative P.O.D. payee or beneficiary, on a P.O.D. account or other multiple-party account, the decedent's marriage is dissolved by divorce, annulment, or a declaration that the marriage is void, the designation provision on the account is not effective as to the former spouse or the former spouse's relative unless: (1) the court decree dissolving the marriage designates the former spouse or the former spouse's relative as the P.O.D. payee or beneficiary; (2) the decedent redesignated the former spouse or the former spouse's relative as the P.O.D payee or beneficiary after the marriage was dissolved; or (3) the former spouse or the former spouse's relative is designated to receive the proceeds or benefits in trust for, on behalf of, or for the benefit of a child or dependent of either the decedent or the former spouse. (c) If a designation is not effective under Subsection (b), a multiple-party account is payable to the named alternative P.O.D. payee or beneficiary or, if an alternative P.O.D. payee or beneficiary is not named, to the estate of the decedent.

Because this section was just added in the 2015, there are few published decisions interpreting its provisions. However, cases interpreting life insurance and estate designations should provide guidance. As I've noted in previous entries, many estate related disputes these days involve the disposition of accounts and life insurance policies with beneficiary designations. If there is a belief that a divorce may invalidate a beneficiary designation, it is critical to notify the financial institution as soon as possible and consult an experienced estate litigation attorney.