State law

Virginia: Beneficiary Disputes and Interpleader Under Virginia Law

Virginia revokes a former spouse's designation at divorce, but a property settlement that addresses the policy overrides both the statute and the beneficiary form. Virginia's backup recovery rule against a former spouse was struck down for FEGLI in Hillman v. Maretta.

By Michael J. Hoover

Key points

Va. Code § 20-111.1(A) revokes a revocable designation of the other spouse in a contract owned by one party upon a divorce or annulment entered on or after July 1, 1993. The former spouse is treated as having predeceased.
The statute does not apply "to the extent" a decree or written agreement "provides for a contrary result as to specific death benefits," or to death benefits payable to or under a trust.
Federal courts applying Virginia law have held that a property settlement incorporated into the decree overrides the designation on file, including a later designation of a new spouse (Lincoln National v. Johnson, 1999; Northwestern Mutual v. Moore, 2021).
Subsection D makes a former spouse personally liable if federal law forces payment to them. The Supreme Court held that rule preempted for FEGLI in Hillman v. Maretta (2013).

On this page

The statute, and its exceptions
The property settlement controls
When federal law decides: Hillman
Decisions
Elsewhere on this site
Related guides

The statute, and its exceptions

Under Va. Code § 20-111.1(A), when a divorce or annulment is entered on or after July 1, 1993, “any revocable beneficiary designation contained in a then existing written contract owned by one party that provides for the payment of any death benefit to the other party is revoked.” The former spouse is treated “as if the former spouse had predeceased the decedent.” A payor that pays under the contract is discharged unless it received written notice of the revocation before paying.¹

Subsection C contains two exceptions. The statute does not apply “(i) to the extent a decree of annulment or divorce from the bond of matrimony, or a written agreement of the parties provides for a contrary result as to specific death benefits, or (ii) to any trust or any death benefit payable to or under any trust.”¹

Since July 1, 2012, every Virginia divorce decree must warn in bold print that designations “may or may not be automatically revoked by operation of law” and that “existing beneficiary designations may remain in full force and effect” unless the party follows the provider’s change instructions.¹

The property settlement controls

In Virginia, the decisive document is often the property settlement agreement (PSA), not the beneficiary form. Judge Ellis in Moore described “the settled Virginia rule that a property settlement agreed to by the divorcing parties and adopted as part of a divorce decree takes precedence over and replaces existing beneficiary designations in an insurance agreement.”²

That rule was set out early in Lincoln National v. Johnson, which predicted how the Supreme Court of Virginia would rule:³

The agreement. A 1991 agreement, incorporated in the 1994 divorce decree, required the insured to keep his life insurance and name “the children of the parties” after the divorce.
The rival claimants. After he remarried, his widow claimed through a change form that reached the insurer only after his death, and his adopted adult stepdaughter claimed as one of “all children” under the policy’s contingent designation.
The ruling. Judge Morgan held that § 20-111.1 did not apply because the agreement “provides a contrary result,” and that the agreement superseded the policy designations. In the court’s words: “A contrary finding would permit a party to a valid Stipulation and Agreement to modify it through a unilateral act or omission.”

Moore applied the rule against a second husband named in 2015 and then went further. The PSA required the insured to name her former husband “as Trustee for the benefit of the children.” No trust was set up until after her death, when the former husband created trusts that let him delay distributions until the children reached 35. The court found those trusts inconsistent with the PSA. Because the children were adults pursuing graduate degrees, it ordered the money paid directly to them in equal shares. Claims between the two Virginia claimants that went beyond the interpleaded fund were dismissed without prejudice.²

When federal law decides: Hillman

Subsection D addresses cases where federal law requires payment to the former spouse. It makes “a former spouse who, not for value, receives the payment of any death benefit that the former spouse is not entitled to under this section” personally liable to the person who would otherwise have received it.¹

In Hillman v. Maretta (2013), the U.S. Supreme Court held that this provision is preempted for Federal Employees’ Group Life Insurance. The named former spouse kept the FEGLI proceeds. For FEGLI and similar federal programs, the federal designation rules decide the outcome; see federal programs. The policy in Johnson was a group policy issued to a private association, not a federal program, and Virginia law applied.

Decisions

Lincoln National Life Ins. Co. v. Johnson (E.D. Va. 1999)

No. 2:98cv439; 38 F. Supp. 2d 440
Judge Henry Coke Morgan Jr.
Decided Feb. 8, 1999

Facts: A $90,000 group policy named the first wife, with "all children to share and share alike" as contingent beneficiaries. The incorporated divorce agreement required the insured to name the couple's children after the divorce. The widow and the insured's adopted stepdaughter also claimed. The former wife made no claim, and the insurer deposited $92,116.85.
Holding: The agreement superseded the policy designations and any expectancy of the widow or stepdaughter, and § 20-111.1 did not apply. The claims of the widow and the stepdaughter were dismissed, and the proceeds went in equal shares to the couple's two children.
Why it matters: An insured who agreed in a divorce to name certain beneficiaries cannot undo that by inaction or by a later form.

Opinion: 38 F. Supp. 2d 440 (Justia).

Northwestern Mutual Life Ins. Co. v. Moore (E.D. Va. 2021)

No. 1:19-cv-1312; 511 F. Supp. 3d 723
Judge T. S. Ellis III
Decided Jan. 5, 2021

Facts: On a $500,000 policy, the insured named her second husband in 2015 despite a 2004 PSA requiring her former husband "as Trustee for the benefit of the children." The insurer recovered $7,900.40 in costs by consent, and $495,849.94 was at issue.
Holding: The PSA superseded the 2015 designation, so the second husband had no claim. The former husband's after-the-fact trusts did not satisfy the PSA. The two adult children each received $247,924.97 plus half the interest.
Why it matters: A court enforcing a PSA can look to its purpose. Here, that meant paying the children directly rather than through a trust the agreement never contemplated.

Opinion: court filing via CourtListener (PDF); reported at 511 F. Supp. 3d 723.

Elsewhere on this site

Fifth Season Financial v. Parker (E.D. Va. 2017), on diversity jurisdiction surviving the stakeholder’s discharge, is discussed in statutory vs. Rule 22 interpleader.
Hillman v. Maretta (2013) is summarized in divorce and beneficiary designations.

Va. Code § 20-111.1(A)–(E). Code of Virginia. ↩ ↩² ↩³ ↩⁴
Northwestern Mutual Life Ins. Co. v. Moore, 511 F. Supp. 3d 723 (E.D. Va. 2021) (No. 1:19-cv-1312), ECF No. 41, mem. op. at 3–14 & n.11 (citing Wood v. Martin, 848 S.E.2d 809 (Va. 2020), Jones v. Harrison, 458 S.E.2d 766 (Va. 1995), and Johnson). Court filing (PDF). ↩ ↩²
Lincoln National Life Ins. Co. v. Johnson, 38 F. Supp. 2d 440, 451–52 (E.D. Va. 1999) (No. 2:98cv439). Justia. ↩