If you choose your spouse as beneficiary and later get divorced, could he or she receive the proceeds from your life insurance policy?
“Yes” said the U.S. Court of Appeals recently in a case involving a Minnesota insurance policy.
Mark Sveen bought a life insurance policy from Met Life in 1997 while he was married to Kay Melin.
The Minnesota Legislature enacted a statute in 2002 that supposedly cut off divorced spouses from being beneficiaries on life insurance policies.
In 2007, the couple was divorced but Mark never removed Kaye as beneficiary from his life insurance policy.
Mark died in 2011 and Kaye filed a claim for the life insurance proceeds. Mark’s children opposed Kaye’s claim and the lower court agreed that the law prevented Kaye’s claim.
The U.S. Eighth Circuit Court of Appeals reversed the lower court and ruled that Kaye was entitled to her ex-husband’s life insurance policy.
The Court went further and ruled that the Minnesota law was unconstitutional that tried to terminate divorced spouses on pre-2002 insurance policies.
The Court based its decision on the clause in the U.S. Constitution that prohibited state legislature from retroactively “impairing” the insurance contract that the deceased spouse had signed.
Although the court decision dealt with insurance policies, the court’s prohibition on “impairment” would also appear to apply to other contracts such as annuities and IRAs.
It should also be noted that other courts in other parts of the country have come up with the opposite result. However, this decision was specific to the Minnesota statute so its effect will probably continue in the future unless overturned by the u.S. Supreme Court.
The case highlights the need for divorced spouses to review their beneficiary designations on their life insurance policies, bank accounts and other estate planning documents. While court decisions could change the result in the future, the safe thing to do is to check your beneficiary designations from time to time to be sure they represent who you want to get these proceeds.