Should the ex-spouse get the money?
When someone dies without a will, the state provides an
alternative plan for heirs, the law of intestate succession.
Generally, the property goes to the surviving spouse and
children, or to more remote relatives in their absence.
However, the intestacy laws normally don’t cover property
that is not included in the probate estate, such as
retirement accounts or life insurance. Inheritance of
these is governed by beneficiary designations, signed
when the account is created or the insurance policy is
purchased. One may change a beneficiary designation at
any time, as circumstances change.
Some states have statutes that come into play for nonprobate
property, but their effectiveness is mixed. A June
decision by the U.S. Supreme Court is a timely reminder
of how important it is to include one’s beneficiary designations
in the course of any review of estate plans.
A marriage, a divorce, and a death
Warren Hillman worked for the federal government. He
had insurance coverage through the Federal Employee
Group Life Insurance program (FEGLI). In 1996, when
he was 54 years old, Warren designated his second wife,
Judy, as the beneficiary of that insurance. Two years
later, the couple divorced. The divorce decree did not
mention the insurance, and Warren did not file a new
beneficiary designation. Perhaps he actually wanted Judy
to get the money, or perhaps he was relying on his state’s
(Virginia’s) law that beneficiary designations in favor of a
spouse are revoked automatically by a divorce.
Warren married a third time in 2002, but he didn’t
revisit the insurance beneficiary designation. Nor did he
take a look at it when he was diagnosed with leukemia,
the disease that took his life at age 66 in 2008. The third
wife, Jacqueline, expected to get the $124,558.03 of insurance
proceeds, but Judy was still the named beneficiary.
The proceeds were paid to Judy, in accordance with
the beneficiary designation, because federal law trumps
The Supremes speak
The Virginia statute also included an end-around for this
situation. In the event that an ex-spouse received death
benefits, they would be owed to the surviving spouse. On
that basis, Jacqueline filed suit against Judy to recover the
money. The lower court sided with her, but the Virginia
Supreme Court reversed. A unanimous U.S. Supreme
Court agreed that federal law preempts the entire Virginia
statute. Congress could change the result for cases such
as this, but the courts and the Virginia legislature cannot.
The ex-wife is entitled to the insurance proceeds.
Estate planning is easy to put off, but it is vitally important.
If having Judy get the insurance money was not the
outcome that Warren wanted or expected, he could have
altered it by executing a simple change of beneficiary form.
If Jacqueline knew about the insurance, she should have
insisted on reviewing the beneficiary designations when
they married, or certainly when Warren’s illness was diagnosed.
We can’t truly know what Warren’s testamentary
wishes were, but we can be reasonably confident that he
didn’t foresee or desire litigation that would last for five
years and go all the way to the U.S. Supreme Court.