Life Insurance Policy Lawsuit Goes Before SCOTUS After Divorce

A lawsuit over who should get the proceeds of a life insurance policy went before the U.S. Supreme Court. At issue was who should be the beneficiary of the policy. Minnesota has a rule making spouses the default beneficiary of any life insurance policy. However, this is revoked upon divorce.

In one case, the life insurance policy was never mentioned in the divorce decree and it was never updated after the couple divorced. The ex-wife believed the insurance policy should be paid out to her as the primary beneficiary. The children argued that her name should have been removed from the policy at the time of divorce.

The rule is the same here in Pennsylvania as it is in Minnesota. Once a couple is divorced, the default beneficiary of a life insurance policy would revert to a secondary beneficiary. 26 other states have the same rule while 24 require the couple to change the policy manually.

The rules in place are meant to reflect the likely wishes of the deceased. The rule generally presumes that a divorced spouse will not set out to enrich their former partner. Hence, upon divorce, if your spouse is the primary beneficiary of your life insurance policy, the policy would be paid out to a secondary beneficiary unless you manually establish the ex-spouse as the primary beneficiary after the divorce is finalized.

The lawsuit 

The wife and children filed competing claims for the life insurance policy. The wife claimed that she was the rightful recipient of the policy, which had not been updated. The children claimed that under Minnesota law, her name would have been automatically removed from the policy once the divorce decree was entered.

Why did this case go before the Supreme Court when the rule is clear? Well, in this case, Minnesota’s law had not been enacted until after the policy was signed. The Supreme Court had to make a decision as to whether or not the provision could retroactively be applied to the contract. That is generally prohibited by the U.S. Constitution.

The case was decided in favor of the children, but the appeals court decided that retroactively applying the law violates the Contracts Clause of the Constitution.

SCOTUS decided that retroactively applying the law did not violate the Constitution. While the Contracts Clause restricts the power of states to pass laws that void pre-existing contracts, it does not bar states from passing any law that voids a contract.

Further, SCOTUS decided that it was the best interests of the decedent who mattered the most in this equation, not either party contesting the will. Ultimately, the court found that the decedent would have likely wanted the inheritance to go to his children, and not his former wife. Hence, the law did not violate the expectations of the most important party.

Talk to a Pennsylvania Divorce Attorney Today 

Philadelphia family lawyer Lauren H. Kane represents the rights of couples seeking divorce. Call today to learn more about how we can help.

Source:

apa.org/monitor/2019/01/jn