Supreme Court’s ruling affects post-divorce insurance payout

On Behalf of | Jun 21, 2018 | divorce, Firm News

Deference to state law-making authority.

That was essentially the bottom line in a family law ruling issued earlier this month by the nation’s highest court in a case pitting contractual rights against state powers. Although the matter pertained to a Minnesota dispute, the U.S. Supreme Court’s discussion and ultimate disposition of the matter command broad relevance in Illinois and every other state. We relate the details immediately below.

The case the court took on appeal involved a deceased man’s life insurance policy listing a former wife as beneficiary. The ex-spouse duly staked her claim to the proceedings upon the policyholder’s death.

So too, though, did his adult children from a prior marriage. Their rationale was grounded in a Minnesota law passed while the former spouse was still married to the children’s father. That enactment provides for the automatic termination of a beneficiary designation to an ex-spouse upon divorce.

A first-instance federal court found for the children. An appellate court reversed that ruling, though, stating that retroactively applying the so-called “revocation-upon-divorce” statute to a contract violated the U.S. Constitution.

The appeals panel specifically pointed to the sanctity of contracts, stating that the law interfered with the free ability of individuals to enter into contractual arrangements. Because the woman’s name was on the insurance contract as beneficiary when the man died, the court held, no legislation should be allowed to retroactively influence that determination.

The Supreme Court disagreed, ultimately putting the matter to rest nationally via its decision issued earlier this month. The tribunal’s ruling favored the adult children, holding that retroactively applying a revocation-on-divorce standard is a state’s prerogative that does not violate federal law.

There is certainly an instructive element attached to the case for divorcing parties in Illinois and every other state, namely this: It is a good idea for any impending-ex to work closely with proven family law counsel to identify and take appropriate action concerning contracts and documents that might play a key role during the divorce process.