Federal courts often interpret state laws to resolve beneficiary disputes, and when state law is unclear, they must make an educated guess on how a state court would rule. In Transamerica v. Moore, the 5th Circuit Court of Appeals disagreed with a federal judge’s interpretation of Texas law regarding life insurance beneficiary designations after a divorce.

Background of the Case

In 2018, Ian Simpson purchased a $100,000 life insurance policy from Transamerica, naming his fiancée Holly Moore as the primary beneficiary and his father, Jeffrey Simpson, as the contingent beneficiary. Ian and Holly married in September 2018 but divorced in January 2021. The divorce decree specifically stated that Holly had no claim to Ian’s life insurance policies, but Ian did not update the beneficiary designation. After Ian’s death in May 2021, both Holly and Jeffrey claimed the policy’s proceeds, leading to a legal dispute.

Legal Dilemma

The central issue was whether Texas Family Code § 9.301 automatically revoked Holly’s beneficiary status following the divorce, even though the policy was purchased before the marriage. Holly argued that the policy, acquired before marriage, was Ian’s separate property, so the law should not revoke her beneficiary status. Jeffrey argued that the law clearly removed her as a beneficiary after the divorce.

The Court’s Decision

The 5th Circuit ruled in favor of Jeffrey, finding that Texas Family Code § 9.301 applied, revoking Holly’s status as a beneficiary after the divorce, regardless of when the policy was purchased. The court emphasized that the divorce decree, which divested Holly of any interest in the policy, was key. The policy proceeds were awarded to Jeffrey, the contingent beneficiary.

Why This Case Matters

This case highlights the importance of updating life insurance policies after a divorce. In Texas, as in many states, divorce can automatically revoke a former spouse’s beneficiary designation, even if the policy predates the marriage. If you want your ex-spouse to remain a beneficiary, you must re-designate them after the divorce is finalized.

Key Takeaways

1. Review and update all life insurance policies and financial documents after a divorce.

2. Understand state laws like Texas Family Code § 9.301 that revoke former spouses’ beneficiary status upon divorce.

3. Communicate any changes in your beneficiary designations to avoid legal disputes.

By keeping these steps in mind, you can protect your assets and ensure they are distributed according to your wishes.

For more insights on life insurance beneficiary disputes, contact J. Michael Young at myoung@wynnesmithlaw.com.