Do I need a Life Insurance QDRO?

The short answer is “it can’t hurt!” The law regarding the division of life insurance is state specific. If the parties agree or the court so orders the division of life insurance to preserve a participant’s former spouse, child or dependent, then the award should be in the divorce judgment or legal separation. A divorce judgment or legal separation can be considered a QDRO. However, to make sure that you have secured the beneficiary/ies interest in the life insurance and for privacy reasons, you should also prepare a life insurance QDRO (commonly called a LIQDRO).

There are cases throughout the United States where the division of life insurance in divorce is litigated. The issue in these cases is generally whether a court ordered beneficiary designation in a divorce judgment protects that beneficiary’s right to the life insurance even if (1) the participant (insured) changes the beneficiary designation after divorce, or (2) there is an any automatic revocation of the ex-spouse as beneficiary by the life insurance company or under state law. In many cases, the court ordered beneficiary loses the right to be the beneficiary because the divorce judgment language did not sufficiently protect that person to be considered a QDRO. This was most recently illustrated in the United States Supreme Court case Sveen v. Melin (2018) U.S. LEXIS 3503, 2018 WL 2767640. Only a QDRO will trump a change in beneficiary designation.

"The bottom line is that if there is a LIQDRO, the court ordered beneficiary designation right to life insurance is preserved. Otherwise, there is a chance of litigation and loss of that benefit."

Should I prepare a life insurance QDRO for all types of life insurance?

We recommend as a precaution preparing a LIQDRO for all types of life insurance. [term, permanent (whole life and universal life), employer provided, state government provided and individual provided). In short, it cannot hurt but can certainly help make the difference in ensuring coverage. A LIQDRO acts as a preventative measure even if there is judgment language dealing with the life insurance. There is less of a likelihood that litigation will ensue should there be an unauthorized beneficiary change.

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