The Supreme Court has ruled that a Minnesota law that revoked a former spouse’s insurance beneficiary designation after divorce does not violate the contracts clause of the U.S. Constitution when applied to a life insurance policy before the law’s enactment. Justice Elena Kagan and seven other justices sided with the adult children of a deceased Minnesota man in their majority opinion in Sveen v. Melin. Justice Neil Gorsuch dissented.
In 1998, Mark Sveen of Minnesota named Kaye Melin, his wife at the time, the primary beneficiary of his life insurance policy. The couple divorced nine years later, but Sveen never removed his ex-wife from his policy.
In 2002, Minnesota amended its state probate law to include insurance designations in the “revocation-on-divorce” statute, making it one of the 26 states that have adopted such laws, which are based on a 1990 amendment to the Uniform Probate Code. As Justice Kagan pointed out, the law assumes that failure to change an insurance beneficiary after a divorce is likely caused by inattention instead of intention.
According to the amendment law, the dissolution or annulment of a marriage rescinds any revocable beneficiary designation made by a person to that person’s former spouse. Sveen passed away in 2011, four years after separating from his spouse, who was still the primary beneficiary on his life insurance policy. The problem is that Melin and Sveen’s adult children, both filed claims for the policy’s proceeds.
While a federal judge ruled in favor of the children, a three-judge panel in the Eighth Circuit reversed the decision last year, arguing that retroactively applying the 2002 amendment to Minnesota’s revocation-upon-divorce law to Sveen’s life insurance policy violates the U.S. Constitution’s contracts clause, which prevents a state from meddling with contractual agreements.
According to U.S. Circuit Judge William Benton of the Eighth Circuit panel, what is most important are the policyholder’s rights and expectations, not the interests of the beneficiary.
High Court Steps In
Sveen’s children, however, took their case to the United States Supreme Court, arguing that Melin was automatically removed as a beneficiary on their father’s life insurance when the 2002 law was applied to the policy. The High Court reversed the Eighth Circuit ruling in an 8-1 decision.
“Three aspects of Minnesota’s law, taken together, defeat Melin’s argument that the change it effected ‘severely impaired’ her ex-husband’s contract,” Justice Kagan wrote. “First, the statute is designed to reflect a policyholder’s intent—and so to support, rather than impair, the contractual scheme. Second, the law is unlikely to disturb any policyholder’s expectations because it does no more than a divorce court could always have done. And third, the statute supplies a mere default rule, which the policyholder can undo in a moment.”
What About in Texas?
Texas Family Code § 9.301 states that when you divorce your spouse, your spouse’s beneficiary status on your life insurance is automatically revoked. There are, however, three exceptions to the rule:
The divorce decree indicates the ex-spouse as a beneficiary
The person intentionally adds the divorced spouse as a beneficiary after the divorce
The former spouse receives life insurance proceeds because he or she acts as the legal guardian of the children
If you or a loved one are concerned about your will and insurance after a divorce, do not hesitate to schedule a consultation with the family law experts of the Lyttle Law Firm. Talk to a divorce lawyer by calling our offices at 512.215.5225.