These days, when the US Supreme Court decides a matter 8-1, it should be “breaking news!” That the case also involves estate planning matters means that you should know about it as soon as possible.
So as not to keep you in suspense, here’s what is important. For life insurance policies that a married couple purchases and cross-designates the beneficiary, meaning Spouse 1 designates Spouse 2 as the beneficiary and vice versa, those beneficiary designations are revoked when the couple divorces and the divorce decree is final in those states which have passed such a law. In other words, if a couple divorces in Florida (and those other States with this law,) they will automatically lose their beneficiary status on the life insurance policy.
Melin married Sveen in 1997. Sveen purchased a life insurance policy naming his then wife, Melin, as the primary beneficiary and designated his children from a prior marriage as contingent beneficiaries. In 2002, the Minnesota legislature enacted Minn. Stat. Section 524.2-804, automatically revoking any beneficiary designation made by an individual designating the individual’s former spouse as the beneficiary on divorce. Melin and Sveen divorced in 2007 and their divorce decree did not mention the insurance policy. No revisions to the beneficiary designations were made by Sveen post-divorce. In 2011, Melin and the Sveen children claimed the insurance proceeds after Sveen’s death to which they were denied.
In Sveen et al. v. Melin, the U.S. Supreme Court upheld the retroactive application of Minnesota’s law which automatically revokes life insurance beneficiary designations made by an individual to the individual’s former spouse upon divorce. The ruling upholds the statue stating that it does not violate the Contracts Clause. This is because an insured cannot reasonably rely on a beneficiary designation staying in place after a divorce. Divorce courts have wide discretion to divide property upon dissolution of a marriage. The law supplies a mere default rule, which the policyholder can easily undo by re-assigning the ex-spouse as a beneficiary.
What does this mean for you?
Do you have any planning in place? If you have done your research and spoken to your trusted advisor, chances are you may be relying on life insurance as the dominant estate planning tool. In 2012, Florida legislature enacted F.S. 732.703 in which divorce, dissolution, or invalidity of marriage revokes beneficiary designations on certain assets including life insurance. If you are happily married, and you are a designated beneficiary, things stay the same and this does not affect you. It is important that you speak to a trusted advisor to ensure that you have the correct planning in place for whatever life may throw your way.
Unfortunately, if you are in the process of getting divorced or are divorced, it is important to ensure that you have the correct beneficiary designated on your life insurance policy. You may want to keep your ex-spouse as your designated beneficiary on your life insurance policy, but it is important to understand that if you are divorced, according to Florida Law, you will have to re-assign them as the primary beneficiary.
And if you happen to be the soon-to-be ex-spouse, you should understand and ensure that your beneficiary status is appropriately addressed in the divorce agreement.
If you need some help with this or other estate planning topics, please drop us a line. We want you to be a hero to your family.