Collaborative Marital Settlement Agreements: Insurance Policies

Baby and black lab sitting in field of purple flowers. Collaborative Marital Settlement Agreements Insurance Policies.

On divorce, Florida law automatically revokes beneficiary designations under insurance policies in favor of an ex-spouse. But you and your spouse may say in your collaborative marital settlement agreement you intend to designate one or the other as beneficiary. Otherwise, on entry of a final judgment of dissolution of marriage, most insurance policy beneficiary designations of an ex-spouse end.

Therefore, consider overriding automatic revocation of beneficiary designations under insurance policies. After divorce, you may want the insured policy holder to redesignate a spouse as beneficiary. For example, you may decide you’d like to secure alimony or child support with life insurance. To achieve that goal, keeping your ex-spouse as beneficiary may make sense.

Florida’s Automatic Revocation Statutes – Life Insurance and Accounts, Wills, and Revocable Trusts

Florida Statutes Section 732.703 of the Florida Probate Code revokes on divorce designations of an ex-spouse under financial instruments such as life insurance policies, individual retirement accounts (IRAs), and pay on death accounts. For further discussion, read how the statute applies and exceptions here.

Toddler son riding piggyback on shoulders of dad. Florida Divorce Wills Trusts Automatic Revocation of Beneficiary Designations After Divorce.

As your collaborative divorce team considers automatic revocation of insurance policy designations on divorce, it should also consider related statutes that affect other instruments.

First, section 732.507, Florida Statutes, also in the Florida Probate Code, applies to will provisions that affect an ex-spouse.  

Second, section 736.1105, Florida Statutes, in the Florida Trust Code, applies to designations of an ex-spouse under revocable trusts. The Florida Legislature amended both sections effective July 1, 2021. See Laws of Florida 2021-183.

Statewide Automatic Revocation Statutes

Here is a chart of state automatic revocation statutes.

States Enactment - Automatic Revocation of Beneficiary Designations of Ex-Spouse on Divorce

Florida is one of 27 states with an automatic revocation on divorce statute substantially similar to the Uniform Probate Code’s Section 2-804. To read Section 2-804, please click here.

See Ala. Code § 30-4-17; Alaska Stat. § 13.12.804; Ariz.Rev.Stat. § 14-2804; Colo.Rev.Stat. § 15-11-804; Haw.Rev.Stat. § 560:2-804; Idaho Code § 15-2-804750 ILCS Illinois Marriage and Dissolution of Marriage Act 5/503(b-5)(2) (effective January 1, 2019)(life insurance policies) and 755 ILCS 5/4-7(b) (wills); Iowa Code § 598.20A, Iowa Code § 598.20B, and Iowa Code §633.271; Mass. Gen. Laws, ch. 190B, § 2-804; Mich. Comp. Laws Ann. § 700.2806 and Mich. Comp. Laws Ann. § 700.2807; Minn. Stat. § 524.2-804 subd. 1; Mont. Code Ann. § 72-2-814; Nev. Rev. Stat. § 111.781; N.J. Stat. Ann. § 3B:3-14; N.M. Stat. Ann. § 45-2-804; N.Y. Est., Powers & Trusts Law Ann. § 5-1.4; N.D. Cent. Code § 30.1-10-04; Ohio Rev. Code § 5815.33; 20 Pa. Stat. and Cons. Stat. § 6111.2; S.C. Code § 62-2-507; S.D. Codified Laws § 29A-2-804 ; Tex. Fam. Code § 9.301 and Tex. Fam. Code § 9.302 (retirement benefits and financial plans); Utah Code § 75-2-804; Va. Code § 20-111.1 ; Wash. Rev. Code § 11.07.010; Wis. Stat. § 854.15.

US Supreme Court Sveen v. Melin Decision

But are these automatic revocation statutes constitutional?  After considering the question in Sveen v. Melin, 138 S. Ct. 1815 (June 11, 2018), the US Supreme Court answered “yes.”

In Sveen, the Supreme Court held Minnesota’s statute (similar to Florida’s) automatically revoking certain insurance beneficiary designations did not unconstitutionally impair contracts. The Court further held, as applied to life insurance beneficiary designation signed before the Minnesota’s statute became law, the statute did not violate the Contracts Clause of the United States Constitution. See Cazobon, Denise B. and Stashis, Alfred, Jr., Beneficiary Designations in Divorce: Lessons from Sveen v. Melin, Family Law Commentator, Fall 2018, p. 11.

On remand, the Eighth Circuit Court of Appeals upheld awarding the policy proceeds to Mr. Sveen’s children, rather than to his ex-wife. See Metropolitan Life Ins. Co. v. Melin, 899 F. 3d 953 (8th Cir. 2018). See also Blalock v. Sutphin, 275 So. 3d 519 (Ala. 2018) (affirming trial court’s order that decedent’s daughter was the sole beneficiary of New York Life whole life insurance policy, because decedent’s designation of his ex-wife, before they divorced, as beneficiary was automatically revoked under Alabama’s revocation on divorce statute).

Automatic Revocation on Divorce – Uniform Probate Code, Section 2-804

The Uniform Probate Code provision revokes upon divorce:

  1. testamentary bequests in wills and
  2. nontestamentary (intervivos) beneficiary designations to a former spouse.

See §§ 2‑804(a)(1), (b)(1), 8 U.L.A. 330, 330-331.

Section 2-804 revokes rights of a former spouse (and the former spouse’s relatives) to take under wills (“testamentary” transfers) and revocable transfers a person provides for while alive (“intervivos transfers”). Intervivos transfers include beneficiary designations under revocable trusts, life insurance policies, or retirement plans. See General Comment, Part 8, Uniform Probate Code (1969) (Last Amended or Revised in 2019), National Conference of Commissioners on Uniform State Laws.

UPC Rewrite in 1990: Expands Automatic Revocation to Will Substitutes

The 1969 Uniform Probate Code underwent a rewrite in 1990. Before 1990, Section 2-508 revoked devises by will to a former spouse. In 1990, the Joint Editorial Board for the Uniform Probate Code (now the Joint Editorial Board for Uniform Trust and Estate Acts) and a special Drafting Committee to Revise Article II substantially revised Section 2-804.

The revisers expanded the provision to “will substitutes,” such as revocable trusts, life insurance designations, retirement plan beneficiary designations, transfer-on-death accounts, and other revocable dispositions made before the divorce. See General Comment, Part 8, Uniform Probate Code (1969) (Last Amended or Revised in 2019), National Conference of Commissioners on Uniform State Laws.

But, to avoid automatic revocation on divorce, what can collaborative teams do avoid consequences spouses don’t intend?  For more, read about options couples and their collaborative team might consider.

Retroactivity of Automatic Revocation Upon Divorce Statutes

Meier v. Burnsed – 2022 South Carolina Case Applies to Life Insurance Designation Made before Statute Took Effect

In a case of first impression in South Carolina state courts, the Court of Appeals South Carolina applied an automatic revocation upon divorce statute similar to Florida’s. Meier v. Burnsed, Case No. 5947, Court of Appeals South Carolina (September 28, 2022).

The Facts

The dispute was over $250,000 life insurance proceeds. A former husband’s brother and estate won the appeal and a reversal of summary judgment for the decedent’s ex-wife. The trial court incorrectly found South Carolina’s statute didn’t apply to revoke a beneficiary designation made in the ex-wife’s favor before a divorce. Both the designation and divorce occurred before the statute took effect. Reversing, the South Carolina Court of Appeals held the statute had retroactive effect.

Shortly into the marriage, the husband named his wife primary beneficiary and brother contingent beneficiary on a $250,000 life insurance policy. They divorced five years into the marriage. He paid the premiums for 15 more years until he died. 

Section 62-2-507(c) of the South Carolina Code, like section 732.703, Florida Statutes, codifies the presumption an insured doesn’t intend for his or her ex-spouse to remain a beneficiary of insurance policies after divorce. Its effective date was 11 years after the divorce, but before the decedent died. 

The Fight

The decedent’s brother and estate sued the ex-wife and Transamerica Life Insurance Company. Plaintiffs asserted, under South Carolina’s automatic revocation statute, the divorce revoked the designation of the ex-wife as beneficiary. Their theory was the revocation upon divorce statute was in effect at the triggering event: the insured’s death. The ex-wife counterclaimed for tortious interference with contract. She brought a crossclaim against the insurance company for breach of contract and unreasonable and bad faith refusal to pay her the policy benefits. 

Transamerica sought interpleader to pay the proceeds into the court registry.  

Competing affidavits told different stories. The brother and personal representative asserted the decedent wanted his son to get the policy proceeds. The ex-wife asserted the decedent and she kept a close relationship after their divorce and he frequently told her she was the beneficiary of the policy.

The Trial Court Rules for the Ex-Wife

The trial court denied the brother and estate’s motion for summary judgment, finding the South Carolina statute didn’t apply retroactively. This was so, the court held, despite the US Supreme Court’s 2018 ruling in Sveen v. Melin, which found Minnesota’s revocation upon divorce statute didn’t violate the Contracts Clause of the US Constitution. Attempting to distinguish Sveen, the trial court held South Carolina’s statute changed and impaired the decedent’s contractual relationship with the insurance company.

The Appellate Court Reverses

The South Carolina Court of Appeals disagreed.  The insured’s death, it held, triggered the statute, which applies to “governing instruments” “executed before the effective date” of the statute, unless there’s a clear indication of a contrary intent in the life insurance beneficiary designation.  “Governing instruments” to which the statute applies includes wills, revocable trusts, powers of attorney, life insurance beneficiary designations, annuity beneficiary designations, retirement plan beneficiary designations, and transfer on death accounts. 

The Reasoning

The Court drew on the rationale for revocation on divorce statutes (like Florida’s and South Carolina’s), which Justice Breyer articulated in 2001:

“As many jurisdictions have concluded, divorced workers more often prefer that a child, rather than a divorced spouse, receive those assets. Of course, an employee can secure this result by changing a beneficiary form; but doing so requires awareness, understanding, and time.” 

“That assumption is embodied in the Uniform Probate Code; it is consistent with human experience; and those with expertise in the matter have concluded that it `more often’ serves the cause of ‘[j]ustice.’ ” Id. (alteration by dissent) (quoting John H. Langbein, The Nonprobate Revolution and the Future of the Law of Succession, 97 Harv. L. Rev. 1108, 1135 (1984)).

Egelhoff v. Egelhoff ex rel. Breiner,532 U.S. 141, 158-59 (2001) (Breyer, J., dissenting)

See In re Est. of Sugg, 12 N.Y.S.3d 842, 847 (Sur. Ct. 2015)Alan S. Wilmit, Applying the Doctrine of Revocation by Divorce to Life Insurance Policies, 73 Cornell L. Rev. 653 (1988)Susan N. Gary, Applying Revocation-On-Divorce Statutes to Will Substitutes, 18 Quinnepac Prob. L.J. 83, 95 (2004).

Support for the SC Court’s Decision

Further, the Meier v. Burnsed Court reasoned in Sveen, the US Supreme Court found the Minnesota statute and model code it followed applied an understanding other jurisdictions and law review authors have broadly discussed. This understanding is, after divorce, most spouses don’t want to enrich their ex-spouse. That’s true for both bequests under wills and benefits under life insurance policies.

The South Carolina Court of Appeals surveyed similar revocation upon divorce statutes. It found most, as Florida’s is, are based on the Uniform Probate Code. Most jurisdictions applying the statutes find they apply to revoke the beneficiary designation, even if the statutes weren’t in effect when the insured and named beneficiary-spouse divorced. 

Colorado

E.g., In re Est. of DeWitt, 54 P.3d 849, 853 (Colo. 2002) (en banc) (an insured may preserve the designation of his a spouse as a beneficiary, by adding an express provision to the insurance contract or specifying in a marital settlement agreement, or getting a court order, that the statute doesn’t automatically revoke a spouse’s designation as beneficiary). 

Utah

Stillman v. Tchrs. Ins. & Annuity Ass’n Coll. Ret. Equities Fund, 343 F. 3d 1311 (10th Cir. 2003) (applying Utah‘s revocation upon divorce statute to annuity contracts).

Massachusetts

American Family Life Assurance Company of Columbus v. Parker, 178 N. E. 3d 859, 488 Mass 801 (Mass. 2022)(Massachusetts revocation statute, Mass. Gen. Laws ch. 190B, § 2-804).

Montana

Thrivent Fin. for Lutherans v. Andronescu, 300 P.3d 117 (Mont. 2013) (Montana Tit. 72, ch. 2, Mont. Code applies to a life insurance policy owner’s designation of his spouse as beneficiary, where the policyholder died after the statute’s effective date.

South Dakota

Buchholz v. Storsve, 740 N.W.2d 107, 111 (S.D. 2007) (applying South Dakota’s statute to revoke designation of an ex-spouse under a retirement account).

Illinois Court Finds Revocation Upon Divorce Statute Did Not Apply Retroactively: Shaw v. US Financial Life Insurance Company

In November 2022, an Illinois appellate court held Illinois’ revocation upon divorce statute did not apply retroactively to a life insurance policy. Shaw v. US Financial Life Insurance Company, 2022 Illinois App (1st) 211533 (App. Ct. 1st Dist. 3rd Div. November 16, 2022).

In Shaw, the policy designated an ex-wife as primary beneficiary and the decedent ex-husband’s three children as contingent beneficiaries.

The final judgment of dissolution of marriage was silent as to the life insurance policy. By then, the kids were adults. Several years after the divorce, Illinois enacted 750 ILCS 5/503(b-5). That statute revokes an ex-spouse’s status as beneficiary under a previously issued life insurance policy. The ex-husband died a year later.

The ex-wife claimed the policy proceeds, but the insurance company, following the revocation upon divorce statute, said no. She sued the company and three children. The insurance company moved for interpleader and was allowed to deposit the disputed life insurance proceeds into a bank until the court resolved the dispute between the ex-wife and contingent beneficiaries. The trial judge granted summary judgment in her favor. The appellate court affirms.

The Court Looks to Cases Involving Wills

The ex-wife and adult children disputed which was the “operative act” to measure if the new statute was retroactive. That is, was the operative act entry of the final judgment of dissolution of marriage, before the statute was adopted, as the ex-wife argued? Or was the operative act the decedent’s death, after the statute was adopted, as the children argued? Persuaded the ex-wife’s interpretation was correct, the court held the operative act was entry of the final judgment. 

Prior to enacting the Illinois revocation statute regarding life insurance policies, Illinois law was an ex-spouse remained the beneficiary under a former spouse’s life insurance policy, even after entry of a final judgment of dissolution of marriage. On whether this revocation statute applied to beneficiary designations made before enactment, the ex-wife in Shaw cited analogous Illinois cases involving will provisions in favor of an ex-spouse. Those cases held the operative act (to determine if a revocation statute of will designations was retroactive) was entry of the final judgment of dissolution. She argued, if the final judgment came before enactment of the statute, the statute didn’t apply.

The Court Distinguishes Uniform Probate Code Cases

In opposition, one of the decedent’s three children cited, but the court distinguished, cases modeled after section 8-101(b)(5) of the Uniform Probate Code, including Meier v. Burnsed (South Carolina Court of Appeals, September 28, 2022). Those cases applied revocation statutes enacted after the date of the dissolution judgments to revoke life insurance beneficiary designations made before the dissolution judgments.

But the Uniform Probate Code, amended in 1990, specifically includes a provision revoking beneficiary designations to an ex-spouse upon entry of the dissolution judgment. When Sveen v. Melin was decided in 2018, 26 states had adopted statutes similar to this Uniform Probate Code provision. In contrast, the Illinois revocation statute at issue contained no such provision.

The court reviewed cases that found important that a beneficiary’s interest in a life insurance policy vests only when the insured dies. Still, interpreting the Illinois statute, the court found the operative act that triggers applying the statute was the date of the final judgment of dissolution of marriage, not the date the decedent died. Therefore, because the Illinois revocation statute regarding life insurance beneficiary designations wasn’t enacted until after the final judgment, it didn’t bar the ex-wife’s claim to the life insurance proceeds.

Law Review Articles

Two law review articles discuss the history and purpose of such statutes and treating life insurance designations the same as beneficiary designations under a will.  Lawrence W. Waggoner, The Multiple-Marriage Society and Spousal Rights Under the Revised Uniform Probate Code, 76 Iowa L. Rev. 223 (1991)John H. Langbein, The Nonprobate Revolution and the Future of the Law of Succession, 97 Harv. L. Rev. 1108 (1984).

Conclusion: automatic revocation upon divorce statutes may apply to revoke beneficiary designations under governing instruments, even if the divorce took place before enactment of the statutes. But courts in Uniform Probate Code states may reach different conclusions about retroactivity of such statutes when a decedent dies after their enactment.

Costly Assumptions – Make Things Clear!

Opportunity in Collaborative Divorce to Override Automatic Revocation of Insurance Beneficiary Designations

You may want to override automatic revocation statutes. That is, in your collaborative marital settlement agreements, as the insurance policyholder, you may commit to reinstating your ex-spouse as beneficiary.  However, when you fail to express what you want in your collaborative settlement agreement, unfortunate consequences may follow.

Pitfalls In Failing to Address Automatic Revocation Upon Divorce of Insurance Policy Designations

To illustrate the pitfalls, consider an Alaskan ex-wife’s experience.  She thought her divorce settlement agreement expressly awarded her a Transamerica life insurance annuity policy held at Merrill Lynch. But she learned Alaska’s revocation on divorce statute killed her complaint against Merrill Lynch, its employee, and her ex-husband’s girlfriend, whom he named beneficiary after the divorce and 3 days before he died.

The problem? The ex-wife’s divorce settlement agreement did not mention the Transamerica life insurance annuity. Instead, the agreement awarded her the value of “all retirement accounts which exist as of December 31, 2004.” The agreement specified profit sharing, IRA, 401(k), and Merrill Lynch accounts.  But the agreement failed to specify the annuity policy at issue, held in the Merrill Lynch account the parties agreed the ex-husband would keep.

Unfortunately for the ex-wife, the court rejected her contention that her ex-husband’s meant to keep her as the beneficiary and to avoid the revocation on divorce law. In support, she showed he kept her as the listed beneficiary for 13 years after the divorce and only removed her name when he was on his deathbed. See Snead v. Wright, 427 F. Supp. 3d 1133 (D. Alaska December 3, 2019). The court held the written beneficiary designation controlled.

In Collaborative Marital Settlement Agreements, Consider Automatic Revocation of Insurance Designations

In sum, it’s not enough or wise to assume intent not expressed in writing will override automatic revocation on divorce. Instead, if spouses want to override automatic revocation of insurance policy beneficiary designations on divorce, they need to express that in their settlement agreement.

Assuming things can be costly! So, to avoid costly assumptions, divorcing parties may want to override Florida’s (or other states’) automatic revocation of beneficiary designations under insurance policies. That means, before entry of a final judgment, a policyholder may commit to redesignating, after the divorce is final, a former spouse as beneficiary.  For example, the collaborative team may consider and discuss language here.


Questions About Post-Divorce Designations?

For questions about options for handling beneficiary designations in your Florida Collaborative Divorcecontact Michael P. Sampson.

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