US Supreme Court Overrules 8th circuit and resolves dispute re: revocation-upon-divorce statute

In an 8-1 opinion, The US Supreme Court reversed Sveen v. Merlin, 138 US 1815, 1819 (2018) No. 16-1432, Slip Opinion. and resolved the conflict that existed between the Eighth Circuit, Ninth Circuit, Tenth Circuit, Pennsylvania, South Dakota and Colorado Supreme Courts and held that a Minnesota revocation upon divorce statute’s retroactive application was not am unconstitutional impermissible impairment of the Contracts Clause. Florida also has a revocation-upon-divorce statute (Fla. Stat. Sec. 732.703) and this opinion makes it clear that the family law PR actioner should include in their best practices advise for clients to revisit their estate plans after entry of a final judgment and to carefully craft settlement agreements to reflect any intent that an ex-spouse is to remain a beneficiary. In all instances best practices would dictate re-executing all beneficiary designations so that they post date the Final judgment even where a party’s intent is to keep the ex-spouse as a beneficiary.

Full Opinion Follows:

UPREME COURT OF THE UNITED STATES

Syllabus

Sveen et al. v. Melin

certiorari to the united states court of appeals for the eighth circuit

No. 16–1432. Argued March 19, 2018—Decided June 11, 2018

The legal system has long used default rules to resolve estate litigation in a way that conforms to decedents’ presumed intent. In 2002, Minnesota enacted a statute establishing one such default rule. The statute provides that “the dissolution or annulment of a marriage revokes any revocable . . . beneficiary designation . . . made by an individual to the individual’s former spouse.” Minn. Stat. §524.2–804, subd. 1. Under the statute, if one spouse has made the other the beneficiary of a life insurance policy or similar asset, their divorce automatically revokes that designation so that the insurance proceeds will instead go to the contingent beneficiary or the policyholder’s estate upon his death. The law does this on the theory that the policyholder would want that result. But if he does not, he may rename the ex-spouse as beneficiary.

Mark Sveen and respondent Kaye Melin were married in 1997. The next year, Sveen purchased a life insurance policy, naming Melin as the primary beneficiary and designating his two children from a prior marriage, petitioners Ashley and Antone Sveen, as contingent beneficiaries. The Sveen-Melin marriage ended in 2007, but the divorce decree made no mention of the insurance policy and Sveen took no action to revise his beneficiary designations. After Sveen passed away in 2011, Melin and the Sveen children made competing claims to the insurance proceeds. The Sveens argued that under Minnesota’s revocation-on-divorce law, their father’s divorce canceled Melin’s beneficiary designation, leaving them as the rightful recipients. Melin claimed that because the law did not exist when the policy was purchased and she was named as the primary beneficiary, applying the later-enacted law to the policy violates the Constitution’s Contracts Clause. The District Court awarded the insurance money to the Sveens, but the Eighth Circuit reversed, holding that the retroactive application of Minnesota’s law violates the Contracts Clause.

Held: The retroactive application of Minnesota’s statute does not violate the Contracts Clause. That Clause restricts the power of States to disrupt contractual arrangements, but it does not prohibit all laws affecting pre-existing contracts, see El Paso v. Simmons, 379 U. S. 497, 506–507. The two-step test for determining when such a law crosses the constitutional line first asks whether the state law has “operated as a substantial impairment of a contractual relationship.” Allied Structural Steel Co. v. Spannaus, 438 U. S. 234, 244. In answering that question, the Court has considered the extent to which the law undermines the contractual bargain, interferes with a party’s reasonable expectations, and prevents the party from safeguarding or reinstating his rights. See id., at 246; El Paso, 379 U. S., at 514–515; Texaco, Inc. v. Short, 454 U. S. 516, 531. If such factors show a substantial impairment, the inquiry turns to whether the state law is drawn in an “appropriate” and “reasonable” way to advance “a significant and legitimate public purpose.”Energy Reserves Group, Inc. v. Kansas Power & Light Co., 459 U. S. 400, 411–412.

The Court stops after the first step here, because three aspects of Minnesota’s law, taken together, show that the law does not substantially impair pre-existing contractual arrangements. First, the law is designed to reflect a policyholder’s intent—and so to support, rather than impair, the contractual scheme. It applies a prevalent legislative presumption that a divorcee would not want his former partner to benefit from his life insurance policy and other will substitutes. Thus the law often honors, not undermines, the intent of the only contracting party to care about the beneficiary term. Second, the law is unlikely to disturb any policyholder’s expectations at the time of contracting, because an insured cannot reasonably rely on a beneficiary designation staying in place after a divorce. Divorce courts have wide discretion to divide property upon dissolution of a marriage, including by revoking spousal beneficiary designations in life insurance policies or by mandating that such designations remain. Because a life insurance purchaser cannot know what will happen to that policy in the event of a divorce, his reliance interests are next to nil. And that fact cuts against providing protection under the Contracts Clause. Last, the law supplies a mere default rule, which the policyholder can undo in a moment. If the law’s presumption about what an insured wants after divorcing is wrong, the insured may overthrow it simply by sending a change-of-beneficiary form to his insurer.

This Court has long held that laws imposing such minimal paperwork burdens do not violate the Contracts Clause. It has repeatedly sustained so-called recording statutes, which extinguish contractual interests unless timely recorded at government offices. See Jackson v. Lamphire, 3 Pet. 280; Vance v. Vance, 108 U. S. 514; Texaco, Inc. v. Short, 454 U. S. 516. The Court has also upheld laws mandating other kinds of notifications or filings against Contracts Clause attack. See Curtis v. Whitney, 13 Wall. 68; Gilfillan v. Union Canal Co. of Pa., 109 U. S. 401; Conley v. Barton, 260 U. S. 677. The Minnesota law places no greater obligation on a contracting party than these laws—while imposing a lesser penalty for noncompliance. Filing a change-of-beneficiary form is as easy as satisfying the paperwork requirements that this Court’s prior cases approved. And if an insured wants his ex-spouse to stay as beneficiary but does not send in his form, the result is only that the insurance money is redirected to his contingent beneficiaries, not that his contractual rights are extinguished. Pp. 6–14.

853 F. 3d 410, reversed and remanded.

Kagan, J., delivered the opinion of the Court, in which Roberts, C. J., and Kennedy, Thomas, Ginsburg, Breyer, Alito, and Sotomayor, JJ., joined. Gorsuch, J., filed a dissenting opinion.

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About Beth

Elizabeth Wolt is an AV rated marital and family law attorney. She runs a boutique law firm catering to a select group of clients taking on a low number of cases so she can devote individulaized attention during this difficult transition. Identified as one of the Best and Brightest college Students by USA Today in 1994. Featured in a cover article on May 8, 1997 of the Wall Street Journal. Graduated Magna Cum Laude from Undergraduate School- University of South Florida with a BA in Psychology 1994. Graduated Cum Laude from University of Miami School of Law- JD.1997. Named to the list of "Top Lawyers in Florida" by the Legal Network 2013, 2014, & 2015. AV rated by Martindale Hubbel in both ethics and ability. Rated "Excellent" by AVVO legal.com Featured in the American Lawyer December 2014
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