A Minnesota Estate Planning Lawyer Explains a Recent Court Decision Affecting the Life Insurance Proceeds for Divorced Couple
A recent decision by the U.S. Court of Appeals for the Eighth Circuit should cause anyone who has been divorced scrambling to ensure his or her beneficiaries are property listed on life insurance or retirement accounts. Namely, be sure your ex-spouse is NO LONGER listed as a beneficiary.
The Eight Circuit just struck down a Minnesota law automatically removing an ex-spouse from being listed as a beneficiary on a life insurance policy in a situation where the divorce took place before the law was enacted.
Mark Sveen purchased a life insurance policy from Metropolitan Life Insurance Company (“MetLife”) in 1997 and married Kaye L. Melin later that year. A year later, Mr. Sveen named Ms. Melin as the primary beneficiary of the life insurance policy and his two adult children as contingent beneficiaries. Ms. Melin and Mr. Sveen divorced in 2007.
Mr. Sveen failed to remove Ms. Melin from his insurance policy so that when he died in 2011, Ms. Melin still was the primary beneficiary on the policy. MetLife asked the court to determine who should receive the proceeds of the policy between Mr. Sveen’s children and his ex-wife.
In 2002, Minnesota amended its probate code to state that the dissolution or annulment of a marriage revokes any revocable ... beneficiary designation ... made by an individual to the individual’s former spouse. This is known as a “revocation-upon-divorce” statute.
What does this mean? If you are divorced, it’s as if your ex pre-deceased you for purposes of your life insurance or retirement account such that you wouldn’t need to run out and change your beneficiaries upon finalization of the divorce.
Minnesota also has a law that prohibits another state law from impairing the Contract Clause of the US Constitution. In brief, this law means that the state may not pass a law interfering with an existing contract.
So, the court had to weigh whether the revocation-upon-divorce statute OR the Obligation of Contracts Law was superior.
The Eighth Circuit’s Decision
The Eight Circuit ruled that the retroactive application of a “revocation-upon-divorce” statute to life insurance policies amounted to an impermissible impairment under the Contract Clause of the U.S. Constitution.
In its decision, the circuit court explained that the Contract Clause’s prohibition, although not absolute, encompassed laws that operated “as a substantial impairment of a contractual relationship” and that did not serve a legitimate public purpose or that were not “based upon reasonable conditions and [ ] of a character appropriate to the public purpose.”
I’m not sure I agree as it seems a pretty clear argument that an ex would rather have the proceeds of a life insurance policy go to a child than to an ex-spouse! But, I didn’t make the decision.
How does this affect you?
If your divorce was finalized prior to the 2002 revocation-upon-divorce statute was enacted you must remove your ex-spouse from all relevant beneficiary designations (life insurance, retirement accounts etc..) or risk that he or she may receive the proceeds of such accounts. I doubt many people want anything going to an ex-spouse over a child.
Minnesota Estate-Planning Lawyers
An experienced Minnesota estate-planning lawyer can help walk you through the process of establishing a custom-drafted estate plan crafted to meet the specific needs of you and your family. For more information on estate planning in Minnesota, along with a variety of other topics, contact Chris Tymchuck of Unique Estate Law at (952) 260-2043. You can also visit the Estate Planning page of our website for an explanation of our unique process and get an idea of our fees as we believe the estate planning process should be transparent.