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Supreme court case could award life insurance to ex-spouse

The U.S. Supreme Court will take up the case of who collects on a deceased man’s life insurance policy – his children or his ex-wife. Under a 2002 Minnesota law, a divorce automatically nullifies any beneficiary rights of ex-spouses. But a federal appeals court ruled that such state laws (if applied retroactively) violate the Contract Clause of the U.S. Constitution.

The case has major implications, as more than half of the 50 states have similar revocation-upon-divorce laws. It also has broader constitutional ramifications for conflicts between state statutes and pre-existing contracts. Whichever way the Supreme Court rules, there is a lesson here for anyone getting divorced. Take the extra steps to get your documents in order!

He never changed his beneficiary designation

In 1998, Mark Sveen made his new wife the primary beneficiary of his life insurance policy, with his children (from a prior marriage) as the contingent beneficiaries. In 2002, Minnesota amended its revocation-upon-divorce statute to specifically terminate beneficiary designations. When the Sveens divorced in 2007, Mr. Sveen did not update his life insurance policy to remove his ex-wife as beneficiary. Perhaps it didn’t occur to him. Perhaps he didn’t think it necessary because of the revocation law.

When he died in 2011, his adult children and his ex-wife, Kaye Melin, both filed claims against the life insurance policy, which ultimately ended up in federal court.

The district court granted summary judgment to Sveen’s children and the insurer, Met Life, citing the clear language of Minnesota’s revocation-upon-divorce law.

Melin appealed, arguing Minnesota’s law violated the Constitution. The Contract Clause (Article I, section 10, clause 1) bars states from retroactively impairing contractual rights. A panel of the Eighth U.S. Circuit Court of Appeals agreed, saying that the statute effectively breached the contract (beneficiary designation) Mr. Sveen had signed. It reversed the lower court and reinstated Melin as primary beneficiary.

There’s a pattern here: not taking care of business!

The Eighth Circuit panel relied on a very similar case from 1991. Oklahoma had enacted a revocation-upon-divorce statute, which terminated the beneficiary claim of an ex-wife. The appeals court reversed the revocation, under the same Contract Clause argument. At the time of his death, the Oklahoma man had not changed the beneficiary decision on his life insurance, even though he had been divorced for two years. In the Sveen case, he had been divorced for five years – ample time to make changes to his insurance policy.

If you are divorced or getting divorced, make sure your documents are updated accordingly – your will (if you have one), beneficiary designations, property deeds, loans and anything that bears the name of your ex-spouse. You can’t count 100 percent on the divorce decree or a statute to protect your interests. You can’t assume that a court will know or uphold your intentions. The best bet is to affirmatively get your wishes in writing (or in this case, to get them out of writing).

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