A recent U.S. Supreme Court ruling assures that Minnesota’s revocation-on-divorce statute will operate to revoke all pre-divorce beneficiary designations to the ex-spouse, even on insurance policies entered into before the enactment of the Uniform Probate Code (UPC).
Minnesota adopted the UPC in 2002 which directed that beneficiary designations from life insurance policies and other similar assets, including retirement accounts, were deemed automatically revoked following a divorce. Specifically, Minnesota Statute §524.2-804 provides that “the dissolution or annulment of a marriage revokes any revocable…beneficiary designation…made by an individual to the individual’s former spouse.” The law in Minnesota prior to the adoption of the UPC was that divorce did not nullify a beneficiary designation to a former spouse. The reasoning behind this shift in the law was the policy/account holder’s inferred intent: the 2002 law assumes that most individuals would not want the proceeds from an account or life insurance policy going to a former spouse.
In the case of Sveen v. Melin, the U.S. Supreme Court examined the constitutionality of Minn. Stat. §524.2-804 under the lens of the Contracts Clause. First, a brief overview of the facts. Mark Sveen and Kaye Melin were married in 1997. Sveen purchased a life insurance policy that year, and the following year he named Kaye the primary beneficiary, and his children from a prior relationship were named the contingent beneficiaries. Mark Sveen and Kaye Melin divorced in 2007. The divorce decree made no reference to the policy and Mark did not change the beneficiary designation on the policy. Following Mark’s death in 2011, a dispute over the insurance proceeds arose between Kaye and Mark’s children.
Mark’s children argued that the divorce automatically revoked Mark’s designation of Kaye as the beneficiary of the policy pursuant to Minn. Stat. §524.2-804. Kaye argued that retroactive application of the statute violated the U.S. Constitution’s Contracts Clause, which provides that “[n]o state shall…pass any…law impairing the obligation of contract.” Kaye maintained that by revoking the beneficiary designation upon divorce, the statute impaired Mark’s contract with the insurance company.
In an eight-to-one decision, the U.S. Supreme Court approved of the retroactive application of Minn. Stat. §524.2-804 to life insurance proceeds. Justice Kagan explained that the Contracts Clause is not absolute and courts apply a two-step test to determine whether the clause has been violated in a given case. First, courts ask whether the law at issue has “operated a substantial impairment of a contractual relationship.” If so, courts then consider whether the statute is drawn in an “appropriate” and “reasonable” way with the aim of advancing “a significant and legitimate public purpose.” Justice Kagan concluded that it was only necessary to address the first part of the test in this case. The Court held that Minnesota’s revocation-on-divorce provision does not substantially impair pre-existing contractual arrangements because it carries out the probable intent of most divorcing people. “In other words,” Justice Kagan wrote, “the average Joe does not want his ex inheriting what he leaves behind.” The Court also noted that revocation-on-divorce statutes do not alter an insurance company’s obligation to pay death benefits, and, if a divorcing policy holder happens to intend for an ex-spouse to remain as the beneficiary of the policy, that goal can be achieved through a new beneficiary designation post-divorce. Justice Gorsuch was the sole dissenter, primarily on philosophical grounds based on his belief that any statute retroactively impairing contractual obligations in any way violates the Contracts Clause.
The Supreme Court’s decision removes any doubt that Minnesota’s revocation-on-divorce statute will operate to revoke all pre-divorce beneficiary designations to the ex-spouse, even on insurance policies entered into before the enactment of the UPC. However, from a practical standpoint, it still cannot be emphasized enough that beneficiary designations should be kept up to date, especially when family circumstances change due to death or divorce.