U.S. Supreme Court Decision Reinforces Importance of Updating Beneficiary Designations After Divorce
It is not every day (or year) that the Supreme Court issues a decision impacting estate law. They did, however, issue just such a decision yesterday (June 3) that serves as a good reminder for something that many probably already knew, but is worth reinforcing, and that is: you must change your beneficiary designations after you get divorced. State law might not be able to do it for you.
Yesterday’s unanimous Supreme Court decision, entitled Hillman v. Maretta, arises out of a conflict between a Virginia probate statute and the federal statute relating to the Federal Employees’ Group Life Insurance (“FEGLI” – one of my favorite acronyms) Act of 1954.
The Virginia statute at issue attempts to statutorily revoke a beneficiary designation in any contract that provides a death benefit to an ex-spouse, where the designated beneficiary was not changed by the decedent after the divorce. Perhaps sensing the potential federal statutory conflict, the Virginia statute created an alternative remedy — a cause of action against the ex-spouse in favor of the persons who would have received the proceeds had the decedent revoked the beneficiary designation (in this case, the subsequent spouse).
The Virginia statute is sensible. The law is trying to protect those who simply forgot to complete a change of beneficiary form post-divorce. The problem is that FEGLI, a life insurance program for federal employees, is governed by federal law. Any time a state law attempts to change the result that would occur under a federal statute, there is a conflict, and that is a problem. State law vs. Federal law. Who typically wins? You can probably guess. The feds.
And so it is here. SCOTUS held that the Virginia statute was trumped (“preempted” in legal terminology) by federal law, and thus could not apply to provide the statutory cause of action against the ex-wife or to revoke the beneficiary designation naming the decedent’s ex-wife when the decedent failed to make the change himself.
The takeaway: change (all of) your beneficiary designations when you get divorced!
For the record, this decision only applies directly to federal plans: 401(k), 403(b), FEGLI and other federal plans, and programs for federal government employees.
For its part, Illinois does have a statute that automatically revokes provisions in a will, trust or power of attorney for an ex-spouse after a divorce (note that the divorce must be final), but it does not cover beneficiary designations. A marital settlement agreement might attempt to waive an ex-spouse’s rights, but relying on that is tricky and an invitation to litigation, and based on this decision, presumably could not even apply to federal plans.
In any case, this decision highlights a good a rule of thumb: review and update your estate plan, especially beneficiary designations, after divorce. Relying on state or federal law to do it for you is a recipe for disaster (or, in this case, a unanimous Supreme Court decision).