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Life Insurance and Revocation upon Divorce

Clarkston Legal April 3, 2018

Last month, the SCOTUS heard oral argument on an interesting issue arising in most divorce cases. Life insurance policies are, by statute, automatically revoked between spouses upon a divorce here in Michigan and many other states.

The case at the Supreme Court comes from Minnesota and involves the Husband’s designation of his ex-wife as the beneficiary under his preexisting life insurance policy. At the time of his death, Husband had two adult children from a prior marriage. When he died, however, he had been divorced for nearly a decade; after he divorced, he neglected to change the beneficiary designation on his life insurance.

Husband’s adult children were awarded the life insurance death benefit proceeds pursuant to Minnesota’s revocation upon divorce statute; we have the same statute here in Michigan.

The ex-spouse sued the insurance company and her ex-spouse’s adult children in federal court to resolve the coverage dispute. She argued that the life insurance contract naming her as the beneficiary should be enforced and that Minnesota’s statute -automatically removing her as a beneficiary following her divorce to the decedent- violates the Constitution’s “contracts clause”.

So why does a case like this go all the way to the U.S. Supreme Court? The case was granted certiorari because of the importance of carefully examining the intersection between state laws and the freedom to contract.

Revocation upon divorce statutes are common; we have a similar statute here in Michigan: MCL 552.101 automatically revokes the designation of a spouse in a life insurance contract upon divorce. The legislative assumption baked into the law is that a spouse does not wish to continue designating his or her former spouse as a beneficiary on any life insurance policies.

This assumption was challenged by some of the Justices. Justice Ruth Bader Ginsburg, for example, critiqued the Minnesota statute, suggesting it adopt a requirement used in many states where the family court judge asks each spouse at the “proofs” state of the divorce -in open court- whether they have a life insurance policy and, if so, whether whom they wish to designate as a beneficiary after the divorce.

Michigan courts have upheld our “revocation upon divorce” statute. The law has prohibited an ex-wife from collecting the proceeds of a life insurance policy even if she remains the named beneficiary.

This does not bar an ex-spouse from collecting, however, but he or she must be expressly reaffirmed as a designated beneficiary after the divorce. Lett v Henson, a 2016 Kent County case, so holds. In that case, Husband took the extra-step to designate ex-wife as his beneficiary post-divorce, therefore allowing her to collect the benefits.

Often, a divorce judgment requires the owner of a life insurance policy to maintain the ex-spouse as the beneficiary in order to secure support payments. In such cases, the divorce judgment requires the policy holder to maintain the beneficiary designation for this purpose.

When you are approaching the conclusion of your divorce proceeding, be sure to consult with your lawyer about this important issue. Do not leave your family guessing what your intentions were at the time of your divorce and death.

If you or a family member involved in divorce proceedings have issues like the one featured in this post, contact our law firm to schedule a free consultation.