Tax & Wealth Advisor Alert: Divorce Does Not Always Revoke Your Ex-Spouse as Beneficiary

Most states, including Wisconsin, have a statute that automatically revokes as beneficiary a divorced spouse once the divorce is final.  See, e.g., Wis. Stat. § 854.15.  This means that, unless your will, trust, IRA, 401(k), life insurance, etc., provides otherwise, once a divorce decree is final, an individual’s ex-spouse and the ex-spouse’s relatives receive nothing under your estate plan, even if they are the named beneficiary.  Instead, the funds or property will transfer to the next of kin.

However, this may not be the result for any benefits provided as part of an employee benefit plan.  In Egelhoff v. Egelhoff, 532 U.S. 141 (2001), the United States Supreme Court held that a Washington statute similar to Wisconsin’s § 854.15 was preempted by ERISA, the Employee Retirement Income Security Act.  Instead of applying the statute and awarding Mr. Egelhoff’s life insurance proceeds to his children, the proceeds went to his ex-wife, whom he failed to remove from his beneficiary designation form.  The same rule has since been applied in Illinois, see Melton v. Melton, 324 F.3d 941 (7th Cir. 2003), and would also apply in Wisconsin.

Often times, the law works for us in helpful ways, automatically.  But many times it unfortunately does not.  The lesson to be learned from the Egelhoffs is that it is imperative to update your estate plan after major life events such as divorce, marriage, large purchases, or the death of loved ones.  And in-between these events, an update about every five years is wise.