Divorced Spouses Must Update Beneficiary Designations
Divorced spouses who do not update their beneficiary designations are taking an unnecessary risk, as illustrated by a case now pending before the U.S. Supreme Court. In Sveen v. Melin, No. 16-1432 (cert. granted December 8, 2017), the Met Life insurance company was “caught in the middle” when its policyholder Mark Sveen died in 2011. He had purchased his life insurance policy and designated his then-wife, Kaye Melin, as his beneficiary before the Minnesota Legislature updated its revocation-upon-divorce law in 2002. Sveen and Melin divorced in 2007. When Sveen died, MetLife did not know whether to pay the benefits to Sveen’s grown children from a prior relationship, who were designated as his contingent beneficiaries, or Sveen’s ex-wife. The federal appeals court ruled that it would be unconstitutional to apply Minnesota’s updated law, which automatically terminates a spouse’s beneficiary designation upon divorce. Applying the updated law would modify an existing insurance contract, violating the Contracts Clause of the U.S. Constitution, according to the Eighth Circuit Court of Appeals. Soon the U.S. Supreme Court will decide.
Back when Sveen purchased his policy, a divorce did not automatically revoke the beneficiary designation of a life insurance policy in favor of an ex-wife. Mr. Steen may have known that when he purchased his insurance policy, but it seems unlikely. He may have known, when he was divorced, that his ex-wife was still named on his policy, and he may have intended to maintain her as his beneficiary, instead of his children. But it seems unlikely. His estate argued in the U.S. Supreme Court that he simply forgot to notify that insurance company when he was divorced, as many spouses do; or he may have thought that the new law (which was passed before his divorce was final) would apply to him.
In the Supreme Court, Mr. Sveen’s lawyer argued that applying Minnesota’s revocation-on-divorce law to insurance contracts that existed prior to the passage of the law does not violate the constitution. Insurance companies and policyholders are still free to structure their beneficiary designations as they may choose. When getting a divorce, a policyholder can re-affirm his or her beneficiary designation to maintain a benefit for an ex-spouse. But the “default” mode will be to revoke the beneficiary designation, as most divorcees do not want to leave insurance proceeds to their exes.
Pennsylvania also has a “revocation-on-divorce” law, which applies to beneficiary designations for life insurance and retirement benefits. Still, the revocation on divorce law does not apply to most life insurance and retirement benefits that are provided by private employers, which are governed by federal law. Even a valid court order or marital settlement agreement cannot override a beneficiary designation that is governed by federal law — so spouses must take action when their divorce is final.
This dispute and litigation could have been easily avoided. When a divorce is final, spouses must update their beneficiary designations for life insurance policies and retirement benefits — especially employer-sponsored plans — and their testamentary wills, powers of attorney and other estate planning documents. The lawyers of Pollock Begg can assist clients to identify the insurance and retirement benefits that need to be reviewed, and ensure that beneficiary designations are updated. Contact the Pittsburgh family law attorneys of Pollock Begg Komar Glasser & Vertz LLC at (412) 471-9000 or fill out our online contact form to discuss your specific situation with our experienced divorce attorneys.
Brian C. Vertz is a partner in Pollock Begg Komar Glasser & Vertz LLC, with decades of experience in routine and complex child support cases. Brian is the course planner and author of the 2017 Family Law Update for the Pennsylvania Bar Institute. He is a Fellow of the American Academy of Matrimonial Lawyers, and holds an MBA in finance.