Married persons naming their spouse as a beneficiary in a life insurance policy is common and maybe even the most often seen beneficiary under a life insurance policy.
However, Texas law makes clear that a spouse can designate his or her estate as the beneficiary of the policy, at the expense of the other spouse, absent a showing of actual or constructive fraud. This was made clear in the 1994, Fort Worth Court of Appeals opinion styled, Street v. Skipper.
In the 1981, Eastland Court of Appeals opinion styled, Pilot Life Insurance Co. v. Koch, the policy at issue contained provisions automatically divesting the spouse of any interest in the proceeds, if the parties are “legally separated” or divorced. Also, the divorce decree may divest the former spouse of any right to the insurance proceeds. This was made clear in the 1987, 14th Court of Appeals opinion styled, Novotny v. Wittner. By statute, a divorce invalidates any pre-divorce designation of the former spouse as beneficiary, unless the former spouse is re-designated. If the pre-divorce designation is invalidated, the proceeds may go to any alternate beneficiary or to the insured’s estate. If the insurer pays the former spouse based on an invalidated designation, the insurer is liable to pay the proper beneficiary. This is made clear in the Texas Family Code, Section 9.301.
What is important for life insurance law attorneys to realize is that life insurance policies that are governed by ERISA are not subject to Texas law. So, as the United States Supreme Court stated in 2001, in the case styled, Egelhoff v. Egelhoff, the benefits are paid in accordance with the plan documents. In Egelhoff, since the insured had not changed the beneficiary designation according to the plan, his ex-wife received the benefits.