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In a decision issued on April 20, 2007, in the case Holmes v. Kent & Kent, the Texas Supreme Court addressed an important issue related to the effect of divorce on beneficiary designations signed pre-divorce on Texas Teacher Retirement System accounts. In the decision, the Court let stand a beneficiary designation of a former spouse after the divorce.

Linda McWhorter retired from teaching and received benefits under the TRS system. As part of her benefits, she was entitled to receive a lump sump life insurance benefit at death, and she elected a special type of annuity. At the time of her retirement, she named her spouse, Tommy Holmes, as the beneficiary on both of these benefits. A year later, she and Holmes divorced.

During the pendency of the divorce proceeding, McWhorter attempted to change the beneficiary of both accounts by completing a TRS form and returning it. She was informed that the form was sufficient to change the insurance benefit but not the annuity. Instead, they would require either a divorce decree specifically changing the beneficiary or a signed and notarized signature from her ex-husband authorizing the change.

In the divorce decree, the divorce Court specifically found that Holmes was denied any right to or benefit from any retirement accounts, benefits, annuities, etc. The Court also instructed Holmes to execute whatever documents may be necessary to effectuate any changes necessary consistent with the decree.

Less than a year after the divorce was final, McWhorter died. Her Will left her entire estate to her only son, Alan Kent, and the beneficiaries of her life insurance had been effectively changed to Kent and his wife.

Both the statute concerning TRS benefits and the forms promulgated by TRS stated that the forms must be completed with specific conformity, which would require either the signature of her ex-husband or the divorce decree provision directing the change of the beneficiary. The form also stated that McWhorter could only name one beneficiary (she, in fact, named two-her son and his wife).

TRS determined that the provision in the divorce decree regarding the retirement benefits did not meet their specifications for validly removing Holmes as the beneficiary. TRS also argued before the Court in an amicus brief that the Court should uphold the requirement for specific compliance with their forms rather than acknowledging the Family Code and Insurance Code provisions that require that beneficiary designations in favor of a spouse terminate upon divorce.

The Supreme Court agreed with TRS and determined that the beneficiary designation listing Holmes was effective, in spite of the fact that McWhorter attempted a change of the beneficiary on a TRS form and her divorce decree found that Holmes was not entitled to share in any portion of the retirement benefits.

It is hard to think of an instance where a divorced spouse would want to allow her ex spouse to receive the benefit of any type of beneficiary designation. Texas has well-settled law that terminates such designations in Wills, on life insurance policies, etc. It seems that the Court has created a very special exception to this settled law, which only stands to inappropriately benefit ex spouses after a divorce.

 

Our Houston office conveniently serves our clients in Harris, Montgomery, and Fort Bend counties, while our Dallas office serves clients in Dallas, Tarrant, Denton, and Collin counties.

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