01 May U.S. SUPREME COURT RULES THAT EX-SPOUSE NOT ENTITLED TO LIFE INSURANCE
Although beneficiary designations (such as the beneficiary of a life insurance policy or retirement account) supersede a Will or intestate succession due to the Contracts Clause of the U.S. Constitution, the U.S. Supreme Court has ruled that if the state has a law that results in the automatic revocation of an ex-spouse as a beneficiary upon divorce, then the former spouse would not be the beneficiary even if the state passes the revocation upon divorce law after the beneficiary designation is made.
The ruling stems from a case in Minnesota where the insured had children from a prior marriage, but he named his second wife as the primary beneficiary and his children as the contingent beneficiaries of his life insurance policy. He subsequently divorced the second wife, but he didn’t change his beneficiary designation before he died. At the time of his beneficiary designation, Minnesota did not have a law that resulted in the automatic revocation of a beneficiary designation of a spouse upon divorce. After he purchased the policy but before he died, Minnesota enacted the revocation upon divorce law. The appellate court had ruled that the new Minnesota law could not be retroactive since the Contracts Clause would be violated as the policyholder’s expectations would not be met and that there should be reliance on the law at the time the contract (the life insurance policy) was made.
The U.S. Supreme Court reversed the ruling of the appellate court as it held that Minnesota’s law resulting in automatic revocation on divorce did not substantially impair pre-existing contractual arrangements and did not violate the Contracts Clause of the U.S. Constitution. So, the new Minnesota revocation of beneficiary designation of an ex-spouse on divorce was effective even though the beneficiary designation occurred prior to the passage of the new law. As a result, the children become the beneficiaries of the insurance policy.
It should be noted that Texas has laws whereby a former spouse beneficiary designation would also be automatically revoked upon divorce. Similarly, a former spouse would not be a beneficiary of a Will (even if named as a beneficiary) or be able to act as an agent under a Power of Attorney unless the Will (naming the former spouse as a beneficiary) or Power of Attorney (naming the former spouse as an agent) was done after the divorce.
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