Status of a spouse named as the primary beneficiary of a life insurance policy or similar instrument in the event the marriage is terminated by divorce
Sveen, et el v Melin, United State Supreme Court, 584 U.S. ___ (Decided June 11, 2018)
Mark Sveen purchased a life insurance policy, naming his then spouse, Kaye Melin, as the primary beneficiary and designating his two children from a prior marriage, Ashley and Antone Sveen, as contingent beneficiaries. The Sveen-Melin marriage ended in 2007, but the divorce decree made no mention of the insurance policy and Sveen took no action to revise his beneficiary designations.
After Sveen passed away in 2011, Melin and the Sveen children made competing claims for the insurance proceeds. The Sveen children argued that under Minnesota’s revocation-on-divorce law, their father’s divorce canceled Melin’s designation as the primary beneficiary, leaving them as the lawful beneficiaries. Melin, on the other hand, contended that because the law* did not exist when the policy was purchased and she was therein named as the primary beneficiary, applying the later-enacted law to the policy with respect to her rights as the beneficiary violates the Contracts Clause of the Constitution of the United States.**
The Supreme Court observed that the legal system in the United States has long used default rules to resolve estate litigation in a way that conforms to the decedents’ presumed intent. In terms of the instant action, the law would assume that Mark would want the "default result," but, if he did not, he could have rename Melin as the beneficiary after the divorce took effect.
The Supreme Court held that the retroactive application of Minnesota’s statute does not violate the Contracts Clause, which restricts the power of States to disrupt contractual arrangements, but it does not prohibit all laws affecting pre-existing contracts.
The court noted that two tests are applied in such situations:
1. Does the state law result in as a "substantial impairment of a contractual relationship” by undermining a party’s reasonable expectations, and prevents the party from safeguarding or reinstating his, her or its rights.
2. If such factors show a substantial impairment, the inquiry turns to whether the state law is drawn in an “appropriate” and “reasonable” way to advance “a significant and legitimate public purpose.”
The Legal Department [Legal] of the New York State Teachers' Retirement System [NYSTRS] noted that Chapter 173 of the Laws of 2008, codified in the State's Estates, Powers and Trusts Law §5-1.4, addressed the impact of a divorce on the status of a former spouse's designation as a beneficiary. Legal also noted that NYSTRS "Fact Sheet Chapter 173 of the Laws of 2008", posted on the Internet at http://www.nystrs.org/NYSTRS/media/PDF/Library/Publications/Ch173FactSheet.pdf, provides an overview of the law and the revocatory effect of divorce on designations or nominations of former spouses.
Legal also noted a recent court decision involving Chapter 173, McCauley v New York State Local Employees' Retirement System, 37 Misc 3d 868. In McCauley the court sustained the revocation of a former spouse as the beneficiary of a death benefit on the authority of Chapter 173.
In McCauley the court noted that the Laws of 2008, Chapter 173, §2 provides that "This act shall take effect immediately and shall apply only where the marriage of a person executing a disposition, appointment, provision or nomination in a governing instrument, as defined in EPTL 5-1.4(f)(5), such section as added by section one of this act, to or for the benefit of a former spouse ends in a divorce or annulment, as defined in EPTL 5-1.4(f)(2), on or after such effective date or, where such a marriage ends prior to such effective date, only where such a disposition, appointment, provision or nomination takes effect only at the death of the person who executes it and such person dies on or after the effective date of this act." (Emphasis supplied by the court.)
Significantly, Supreme Court observed that "While the member designated petitioner as a beneficiary and was divorced from petitioner prior to the enactment of chapter 173, the member passed away following its creation. ('This act shall take effect immediately . . . or, where such a marriage ends prior to such effective date, only where such a disposition, appointment, provision or nomination takes effect only at the death of the person who executes it and such person dies on or after the effective date of this act' [citing the Laws of 2008, Chapter 173, §2].) As the law, by its own terms, applies to all deaths on or after July 7, 2008, petitioner's claim has no merit."
The court also agreed with NYSLERS' contention that it was not required to give notice mandated by the State Administrative Procedure Act and Article IV, §8 of the New York State Constitution, explaining that "In this case there was no need for a 'rule,' since EPTL 5-4.1 prescribes by law that the death benefit in question was revoked upon the dissolution of the member's marriage to petitioner. EPTL 5-4.1 is self-implementing."
Further McCauley's reliance on internal policies and procedures adopted by NYSLERS following the enactment of Chapter 173 was misplaced, as these were "internal memoranda meant to explain how [NYSLERS's] employees should proceed under the newly enacted law." The memoranda, said the court, relied on existing regulations and laws for their stated conclusions and thus are interpretive and fall within the exception provided in the State Administrative Procedure Act.
* Minn. Stat. §524.2–804, subdivision 1 provides that if one spouse has made the other the beneficiary of a life insurance policy or similar asset, their divorce automatically revokes that designation.
** United States Constitution, Article I, §10.
The Sveen decision is posted on the Internet at:
The McCauley decision is posted on the Internet at:http://www.nycourts.gov/reporter/3dseries/2012/2012_22283.htm