Normally, family law cases do not involve issues of constitutional law and rarely make it to the U.S. Supreme Court. However, on Monday the Court did have one of these cases and it could have far-reaching consequences in over half the states in our nation.
In Sveen v. Melin, husband and wife had two children together. Husband had a life insurance policy and he named wife as the primary beneficiary and the children as contingent beneficiaries. Husband and wife divorced; nothing in the divorce decree addressed the life insurance policy. Husband subsequently died. The children and wife ended up in a fight over the proceeds of the policy – wife said she should claim because she is the named beneficiary and husband never changed the beneficiary designation.
Seems simple, so what did the children have as a legal argument?
Minnesota is one of 26 states that have enacted a “revocation-on-divorce” statute that provides that upon divorce, where a former spouse is the listed beneficiary on an insurance policy, the act of divorce revokes the beneficiary status of the former spouse and the contingent beneficiary or the estate would claim the policy. The statute is premised on the belief that a policy holder would not intend for the former spouse to still claim as the principal beneficiary and the failure to remove the former spouse was an act of neglect rather than a show of intent. Based on this statute, the children claimed wife had no ability to receive the proceeds of the life insurance policy.
Kids’ argument looks solid, so end of case, right?
A slight hiccup. Minnesota enacted its “revocation-on-divorce” statute after husband bought the insurance policy and made the beneficiary designation. Why does this matter? Because it would require applying the law retroactively, and that creates our potential constitutional problem!
The Contracts Clause of the Constitution prohibits states from passing laws that impair the obligation of contracts. The Clause only applies when the law substantially impairs a preexisting contractual relationship, which means it must undermine the reasonable expectations of the contracting parties. In an 8-1 ruling, Justice Kagan, writing for the Court, held that the Minnesota law did not impair reasonable expectations because (a) it is highly unlikely the husband would reasonably expect his life insurance policy proceeds to go to his former wife over his children or his estate, and (b) if husband did want to see wife remain the beneficiary, he simply had to complete a form reinstating her as the beneficiary. So, in these cases where a state has a revocation-on-divorce statute, the laws can apply retroactively to policies taken out before the enactment of the law. So, in states that have these statutes, if a person really does want to keep a former spouse as a beneficiary, that person needs to take the affirmative step of redesignating the former spouse as the beneficiary.
In our next post, we will see how this ruling applies to Missouri cases.
If you have questions about beneficiary designations and divorce, contact us – we can help.