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Birmingham Bar Association Bulletin Winter 2015

Divorce Law Anna L. Hart, Beckum Kittle LLP The Revocation Of Beneficiary Designations Upon Divorce There has been a sweeping change in Alabama law with regard to the effect of divorce on beneficiary designations. During marriage, one spouse will often name the other spouse as the primary beneficiary of a non-probate asset. Examples of non-probate assets include checking and savings accounts, qualified and non-qualified retirement accounts, private or group life insurance policies, annuities, mutual fund accounts, and certificates of deposit. With regard to retirement accounts, the Employee Retirement Income Security Act (ERISA) governs employee benefits and requires a married employee to designate his or her spouse as the primary beneficiary on such accounts unless the spouse waives this requirement. Non-probate assets pass outside of an estate’s administration. Historically, if parties became divorced from each other, a former spouse could retain his or her status as a beneficiary of a non-probate asset if such assets were not specifically addressed as part of the divorce settlement agreement or divorce decree. In other words, despite the fact that the parties were divorced from each other, the former spouse could enjoy benefits from a non-probate asset upon the death of the other spouse. The rule that divorce does not affect revocable beneficiary designations for non-probate assets has been consistently upheld by Alabama Courts for many years. This law was most recently upheld by the Alabama Court of Civil Appeals in the Kowalski case. Kowalski v. Upchurch, 2015 Ala. Civ. App. LEXIS 162 (Ala. Civ. App. July 17, 2015). In that case, the Court specifically stated: “It is well settled in this state that divorce, by itself, does not affect one spouse's right as the named beneficiary of the other spouse's insurance policy to collect the proceeds of that policy unless a clause in the policy conditions the rights of the beneficiary  upon the continuance of the marriage.” Id. at 9-10 (Ala. Civ. App. July 17, 2015). The Court reasoned that the “rule stems from the fact that a beneficiary's right to proceeds from an insurance policy arises from a contractual obligation, not a marital one.” Id. at 10. While the Kowalski case specifically addressed a beneficiary’s rights under an annuity contract, it fell in line with years of rulings by Alabama Courts that protected the beneficiary designations of former spouses. However, this long-standing law was changed by statute during the Alabama legislature’s 2015 session. Act 2015-312 began as Senate Bill 222, and was sponsored by Senator Greg Albritton (R-Bay Minette). This bill was ultimately passed by the Alabama legislature and became 20 Birmingham Bar Association


Birmingham Bar Association Bulletin Winter 2015
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