Probate & Trust Litigation

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U.S. Supreme Court Upholds Retroactive Application of Revocation-on-Divorce Statutes

In an eight-to-one decision, the U.S. Supreme Court approved of the retroactive application of revocation-on-divorce statutes—laws that revoke beneficiary designations and other dispositions to a spouse automatically when a couple divorces.  Since Massachusetts has enacted a revocation-on-divorce statute, the decision has implications for residents of the Bay State.

The case involved an insurance policy purchased by Mark Sveen, a Minnesota resident, in 1998.  He named his wife, Kaye Melin, as the primary beneficiary, and his two children as the contingent beneficiaries.  In 2007, Mark and Kaye divorced.  Their divorce decree made no mention of the insurance policy, and Mark never took any action to change the beneficiary designation on the policy.  Mark died in 2011, and a dispute arose between Kaye and Mark’s children regarding who should get the proceeds of the insurance policy.

Mark’s children argued that, under a provision of the Uniform Probate Code (“UPC”), adopted by Minnesota in 2002, Mark and Kaye’s divorce automatically revoked Mark’s designation of Kaye as the beneficiary of the policy.  Specifically, the statute provides that “the dissolution or annulment of a marriage revokes any revocable disposition, beneficiary designation, or appointment of property made by an individual to the individual’s former spouse in a governing instrument.”  Notably, the law in Minnesota before the adoption of the UPC, at the time when Mark obtained the policy, was that divorce alone did not affect beneficiary designations, although it could be addressed through the divorce decree.

Kaye argued that retroactive application of the UPC’s revocation-on-divorce provision violated the U.S. Constitution’s Contracts Clause.  That clause states that “[n]o state shall … pass any … Law impairing the Obligation of Contract.”  Kaye maintained that by revoking the beneficiary designation upon divorce, the UPC impaired Mark’s contract with the insurance company.

Justice Kagan, who wrote the decision, 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 the UPC’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 Contract Clause.

While this case involved a Minnesota statute, it has resonance in Massachusetts, which rolled out its version of the UPC (the “MUPC”) in 2012, including a revocation-on-divorce provision (G.L. c. 190B, sec. 2-804).  The enactment of the MUPC constituted a change in the law, which had previously been that a divorce did not automatically revoke a beneficiary designation.  See Stiles v. Stiles, 21 Mass. App. Ct. 514, 515 n.3 (1986).  The Supreme Court’s decision removes any doubt that the Massachusetts 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 MUPC.

The case is Sveen et al. v. Melin, No. 16-1432 (June 11, 2018).