How does divorce affect your beneficiary designation of your ex when you die? Multiple assets covered under Florida’s automatic revocation statute, Section 732.703, Florida Statutes, pass as if your surviving ex-spouse died first.
How it Plays Out: Life Insurance Beneficiary Designations
A former wife named as primary beneficiary on her former husband’s life insurance policy claims benefits. Following their divorce, however, he never changes his beneficiary designation.
Relying on Section 732.703, Florida Statutes, the life insurance company may review the insured’s marital status on the death certificate and pay out the proceeds. The company may avoid the delay and expense of an interpleader action.
How does this work?
First Example: Single, Divorced, or Married to Someone Else
The death certificate states the decedent was unmarried at death. Or, it lists the marital status as “Single” or “Divorced” or “Married” (to someone not the ex). Unless a statutory exceptions applies, Section 732.703(5) authorizes paying the secondary designated beneficiary.
Second Example: Insured Decedent Was Married to the Person Designated as Beneficiary
The death certificate states the decedent was married to the spouse named as the primary designated beneficiary. The payor/insurer won’t be liable for paying on account of, or transferring an interest in, the asset to the primary beneficiary.
Third Example: Designation Form Doesn’t State the Relationship With the Beneficiary
Now suppose the governing instrument has a beneficiary designation, but doesn’t specify the relationship between the decedent and named beneficiary. Or, the instrument explicitly provides the beneficiary is not the decedent’s spouse. The payor/insurer can pay on account of, or transfer an interest in, the asset to the named beneficiary.
Fourth Example: Silence About Marital Status
What if the death certificate is silent about the decedent’s marital status? The payor isn’t liable for paying the primary beneficiary as the decedent designated. The primary beneficiary must deliver to the payor an affidavit in substantially in the form set forth in Section 732.703(5)(b), Florida Statutes.
The Law Before Section 732.703
Florida law voided a provision of a will that affected a decedent’s spouse upon the dissolution of the marriage. The person died but never changed the will following divorce. Florida law treated the former spouse named in the will as if the surviving ex-spouse predeceased the decedent.
But the same wasn’t true for non-probate or non-trust assets, such as a life insurance policy. Before section 732.703 was enacted, courts considered if marital settlement agreements specified who would or wouldn’t receive death benefits under a will or life insurance policy. General language in agreements was insufficient to override plain language of beneficiary designations. See Crawford v. Barker, 64 So. 3d 1246 (Fla. 2011); Cooper v. Muccitelli, 682 So. 2d 77 (Fla. 1996); Luscz v. Lavoie, 787 So. 2d 245 (Fla. 2d DCA 2001); Smith v. Smith, 919 So. 2d 525 (Fla. 5th DCA 2005).
Applicability of Section 732.703(2), Florida Statutes
Section 732.703(2), Florida Statutes provides:
A designation made by or on behalf of the decedent providing for the payment or transfer at death of an interest in an asset to or for the benefit of the decedent’s former spouse is void as of the time the decedent’s marriage was judicially dissolved or declared invalid by court order prior to the decedent’s death, if the designation was made prior to the dissolution or court order. The decedent’s interest in the asset shall pass as if the decedent’s former spouse predeceased the decedent.
The amended statute applies to decedents who die after July 1, 2012, regardless of when they made a beneficiary designation.
The statute applies to the following assets in which a Florida resident has an interest at death:
(a) A life insurance policy, qualified annuity, or other similar tax-deferred contract held within an employee benefit plan.
(b) An employee benefit plan.
(c) An individual retirement account, including an individual retirement annuity described in section 408(b) of the Internal Revenue Code of 1986
(d) A payable-on-death account.
(e) A security or other account registered in a transfer-on-death form.
(f) A life insurance policy, annuity, or other similar contract that is not held within an employee benefit plan or a tax-qualified retirement account.
The Automatic Revocation-Upon-Divorce Statute Doesn’t Apply if the Decedent Gave Away the Decedent’s “Interest in the Asset.”
For the automatic revocation-on-divorce statute to apply, the decedent’s interest in an asset covered by the statute must exist when the decedent and former spouse divorced. Otherwise, there is no “interest in the asset” the decedent has to which the beneficiary designation attaches. See Dargan v. Federated Life Insurance Company, Case No. 22-14284-CIV-CANNON/McCabe (SD Florida October 13, 2022).
Dargan v. Federated Life Insurance Company
While married, the insured named his former wife beneficiary on a life insurance policy. When the couple separated, he made an oral gift (parol gift) of the policy to her. She became the owner and beneficiary of the policy. She kept paying the premiums. They divorced in St. Lucie County, Florida. She continued paying the premiums until he died.
After he died, she claimed benefits under the life insurance policy. But the insurance company denied her claim and moved to dismiss her breach of contract lawsuit.
Federated said she had no standing to bring the action. Once the parties divorced, the company argued, section 732.703(2)(f), Florida Statutes automatically revoked the life insurance beneficiary designation.
Florida’s revocation-upon-divorce statute:
“establishes a default rule that, as to any ‘interest in an asset,’ any ‘designation’ made by one spouse for the benefit of the other spouse becomes void as of the date of the judicial dissolution of the marriage. See § 732.703(2), Fla. Stat. The statute provides numerous exceptions that allow spouses to reverse the effect of this default rule by, for example, specifying the ownership fate of their assets as part of the judicial dissolution, or re-stating asset designations following the date of the divorce. See § 732.703(4), Fla. Stat. (listing exceptions).”
In the September 28, 2022 Report and Recommendation, the Magistrate Judge reasoned the statute applies only to designations made regarding a decedent’s interest in an asset. Further, under 732.703(3), such interest must exist at the time of the decedent’s death.
Interest in an Asset at the Time of Divorce
The judge reasoned the interest in an asset must also exist at the time of the divorce. So, as to assets a spouse previously owned, but no longer owns on the date of divorce, the statute doesn’t logically apply. That’s because, at the time of the divorce, the insured would no longer have any “interest” to “designate.” Likewise, at the time of death, the insured would no longer have any “interest” to “pass.” Therefore, having made a gift of the policy, the late Mr. Dargan lost all interest he had in it. At the parties’ divorce, he lacked any interest to which the revocation statute could apply.
At the motion to dismiss stage, the court had to accept as true the plaintiff former wife’s allegation her former husband gifted her the life insurance policy years before the parties divorced. The court couldn’t find the statute applied to void the beneficiary designation.
Compliance with Policy Formalities to Assign Interest
The insurance company further contended the purported gift the decedent made to the former wife was invalid because he failed to comply with the policy requirements for assignment. The provision about assigning the policy said the insured “may” assign ownership by written request, signed by him, filed at the home office. Using the word “may,” rather than “shall” or “may only,” meant the method for assignment was permissive and nonexclusive for a valid assignment.
As a matter of contract construction, Florida courts have drawn a distinction between these terms. “May” is permissive and non-exclusive. In contrast, “shall” or “may only” are mandatory and exclusive. See, e.g., Granados Quinones v. Swiss Bank Corp. (Overseas) S.A., 509 So. 2d 273 (Fla. 1987) (in a forum selection clause, the words “may” was permissive and nonexclusive, where the contract elsewhere used the terms “shall” and “may only” to denote mandatory and exclusive obligations).
But the life insurance company presented cases decided on summary judgment in which courts found “may” to be mandatory and exclusive in the context of life insurance policy assignment clauses. Sun Life & Health Ins. Co. (U.S.) v. Colavito, 14 F. Supp. 3d 176 (S.D.N.Y. 2014); Fidelity & Guar. Life Ins. Co. v. Teema, No. 3:14-cv-00538-JHM, 2016 WL 4746219, at *2 (W.D. Ky. Sept. 12, 2016).
At the motion to dismiss stage, the Magistrate Judge found the assignment clause capable of more than one interpretation, thus ambiguous, allowing the reviewing court to consider extrinsic evidence to resolve the ambiguity.
Parol Gift or Assignment of Ownership in Asset
A life insurance policy may be the subject of a parol gift. Shannahan v. Shannahan, 173 So. 902 (Fla. 1937) (“The authorities generally sustain the doctrine that a life insurance policy may be the subject of a parol gift.”)
The court distinguished a case with similar facts. Zapata v. The Northwestern Mutual Life Insurance Company (Vale Gonzalez), No. 8:18-CV-2577-T-23AEP, 2020 WL 5534656, at *12 (M.D. Fla. Aug. 3, 2020), decided on summary judgment entered against an ex-wife who paid premiums on a life insurance policy for years following an oral agreement with her ex-husband to keep her as primary beneficiary. The Zapata court applied 732.703(2) to void the ex-wife’s beneficiary designation. The ex-wife in Zapata didn’t contend the former husband gifted ownership of the policy to her before they divorced.
Exceptions to Automatic Revocation
As discussed, in Dargan, at the time of divorce, the insured had retained no interest in an asset to which the automatic revocation statute applied. When, however, a decedent has retained an asset at the time of divorce, the statute applies to covered assets, unless an exception to automatic revocation applies.
This section discusses these exceptions to automatic revocation of beneficiary designations of your ex-spouse.
Exception 1: Controlling Federal Law Provides Otherwise
Federal law preempted state automatic revocation statute
Federal law may preempt automatic revocation. For example, in Hillman v. Maretta, 133 S. Ct. 1943 (2013), the U.S. Supreme Court held federal law, the Federal Employees’ Group Life Insurance Act of 1954 (FEGLIA), preempted a Virginia statute. Virginia’s statute, like Florida’s, automatically revoked a beneficiary designation on a federal employees’ life insurance policy. The decedent, a federal employee, remarried. But he never changed the designation of his ex-wife as beneficiary. His widow lost her lawsuit. She sought to direct the payment of the death benefit to his estate, of which she was beneficiary, rather than to his former wife.
Citing Hillman, a Florida state court held, if the Servicemembers’ Group Life Insurance Act (SGLIA) protected a beneficiary designation under a life insurance policy under the SGLIA, federal law would preempt the state court’s order. The order directed a former husband to change the beneficiary designation of his life insurance policy. Hirsch v. Hirsch, 136 So. 3d 622 (Fla. 2d DCA 2013).
2022 Preemption of State Law Claims (SGLI) – No Extreme Fact or Fraud Exception: Stevens
Consider, now, how federal law preempted state law tort and contract claims against an ex-husbands successor designated beneficiary, his brother. Stevens v. Stevens, 340 So. 3d 536 (Fla. 1st DCA 2022).
A husband and wife divorced. Their consent final judgment directed him to keep life insurance to secure child support for their two kids. He had a Servicemembers’ Group Life Insurance (SGLI) policy for $400,000 designating his kids as beneficiaries.
She remarried. He changed the beneficiary designation from the kids to his dad; if his dad died, his brother, Brian, was successor beneficiary.
The former husband died. He left the kids as sole beneficiaries of his estate. Mom’s new husband adopted them. He then sued the brother (Brian) and personal representative of the ex-husband’s estate.
State Law Tort and Contract Claims Against Successor Beneficiary
The new husband sued the ex-husband’s brother for tortious interference with expectancy, conspiracy to commit conversion, constructive trust, accounting, and breach of third-party beneficiary contract. He sought a constructive trust on the assets traceable to the successor beneficiary’s (the brother, Brian) use of the life insurance proceeds.
Brian defended. He alleged he was entitled to the SGLI life insurance proceeds. He argued the Servicemembers’ Group Life Insurance Act (SGLIA) and the Supremacy Clause of the United States Constitution preempted the state law claims against him.
Testimony showed the brother spent the money on himself, rather than managing the funds for his brother’s kids. He used the money to pay off his mortgage and bills, purchase vacant lots and a life insurance annuity, and make donations. But not a nickel for his brother’s children.
SGLIA Allows Insured Servicemember Absolute Right to Designate Policy Beneficiary
Under the SGLIA, the insured has the absolute right to designate the policy beneficiary and change the designation at any time. “Congress has spoken with force and clarity in directing that the proceeds belong to the named beneficiary and no other.” Ridgway v. Ridgway, 454 U.S. 46, 59 (1981).
SGLI proceeds shall be paid, first, “to the beneficiary or beneficiaries as the member or former member may have designated by a writing received prior to death.” Payments due under an SGLI policy “shall not be liable to attachment, levy, or seizure by or under any legal or equitable process whatever, either before or after receipt by the beneficiary.” 38 U.S.C. § 1970(a), (g).
No Exception to Preemption for Extreme Fact Situation or Fraud
The trial judge found the evidence didn’t establish an exception to preemption of the SGLIA for an “extreme fact situation,” fraud or illegal means. The United States Supreme Court alluded to such an exception to premption in Ridgway v. Ridgway, 454 U.S. 46 (1981).
The trial court based its finding on competent substantial evidence that, when the former husband changed the beneficiary designation, the brother didn’t know about the consent final judgment of dissolution of marriage. Evidence established no oral contract between the brother and former husband to use the insurance proceeds for the children’s benefit.
2021 Preemption Case (ERISA)
Preemption came up in Ragan v. Ragan, 494 P. 3d 664, 2021 COA 75 (Colorado Court of Appeals May 27, 2021). Deciding a matter of first impression, the Colorado Court of Appeals held the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. §§ 1001 to 1461, preempts post-distribution lawsuits against an ex-spouse under Colorado’s divorce-revocation statute, section 15-11-804, C.R.S. 2020. As in Florida, Colorado law automatically revokes upon divorce any beneficiary designation of a former spouse. To avoid this result, the named ex-spouse must expressly waive rights to the ERISA plan proceeds.
No Federal Preemption of Post-Distribution Claims When Ex-Spouse Expressly Waives Rights
On the other hand, when a spouse expressly waives rights to death benefits on an ex-spouse’s death, federal law hasn’t preempted state law claims by the ex-spouse’s estate or secondary beneficiaries. That’s what the Florida Third District Court of Appeal found, in Martinez-Olson v. Estate of Olson, 328 So. 3d 14 (Fla. 3d DCA September 1, 2021).
In a marital settlement agreement, Mrs. Martinez-Olson specifically waived any entitlement to her TV producer decedent ex-husband’s 401(k). After they divorced, she still appeared as named primary beneficiary on the 401(k). His employer, Sunbeam Television Corporation distributed the ERISA-governed 401(k) proceeds to her.
Plan Administrator Must Pay ERISA Benefits According to Plan Documents
In Kennedy v. Plan Administrator for DuPont Savings & Investment Plan, 555 U.S. 285 (2009), the United States Supreme Court held 29 U.S.C. § 1104(a)(1)(D) requires an ERISA plan administrator to act “in accordance with the documents and instruments governing the plan . . . and ERISA provides no exemption from this duty when it comes time to pay benefits.”
The 3d DCA concluded Mr. Olson’s estate could pursue a post-distribution action against the ex-wife to enforce the marital settlement agreement and recover the proceeds. The settlement agreement was specific enough to override the beneficiary designation form. It specifically referred to and the ex-wife waived any interest in the disputed 401(k) plan and the “proceeds therefrom.”
No Preclusion of Enforcement Claims After ERISA Benefits Are Distributed to Ex-Spouse Who Waives Interests
“General language in a marital settlement agreement, such as language stating who is to receive ownership, is not specific enough to override the plain language of the beneficiary designation in the separate document. The spouse, who owns the policy, plan, or account following the dissolution of marriage, is otherwise free to name any individual as the beneficiary; however, if the spouse does not change the beneficiary, the beneficiary designation in the separate document controls.”
It’s unnecessary for divorcing parties to use magic words “death benefits” in expressing the waiver of interest in a specified 401(k) and its proceeds.
The Olson court answered yes to the question of first impression: Could the estate bring the state law claim against the ex-wife as the named beneficiary to enforce a contractual waiver after distribution of the ERISA-governed 401(k) proceeds?
In support of its ruling, the Third DCA cited the Eleventh Circuit decision in MetLife Life and Annuity Company of Connecticut v. Akpele, 886 F. 3d 998 (11th Cir. 2018), which held, while a party not a named beneficiary can’t sue the plan for plan benefits, because ERISA preempts such claims, the party can sue the plan beneficiary to recover benefits received.
Waiver Enforced to Recover Proceeds Paid Out
Similarly, in Walsh v. Montes, 388 P. 3d 262 (NM Ct. App. November 14, 2016) the preemption doctrine did not bar claims between contestants to proceeds of a qualified Fidelity savings and investment plan under ERISA. As in Olson, the decedent designated her ex-husband on, but never updated, a beneficiary designation form. The plan administrator properly paid out the proceeds of the account in reliance on the form and by the plan’s written terms. The court found that the ex-husband had waived his rights in a marital settlement agreement to benefits in the ERISA plan, however. Thus, the court allowed his ex-wife’s estate and children to pursue recovery against him for the proceeds he received.
No Preemption to Recover Funds After the Plan Administrator Pays Them
As in the September 1, 2021 Olson case, discussed above, courts have found no preemption to enforcing express waivers in marital settlement agreements. That means estates may recover funds administrators already paid out to an ex-spouse who waived entitlement to them.
For example, in In re: Estate of Easterday, 171 A. 3d 911 (Pa. Super. 2017), affirmed 209 A. 3d 331 (Pa. 2019) the Easterdays signed a marital settlement agreement waiving their rights to each other’s pension benefits. The decedent had a pension plan through his employer, Federal Express. The pension plan administrator paid benefits to the former Mrs. Easterday. The court held ERISA did not preempt the estate from enforcing the contract she signed, waiving entitlement to those pension benefits. To the contrary, the estate could recover benefits already.
See also Estate of Benyo v. Breidenbach, 233 A. 3d 774 (Pa. 2020) (a statute providing that municipal employee pension funds were payable only to the designated beneficiary and not subject to garnishment or alienation applied “only to pension funds that remain in the possession of the plan administrator,” and didn’t prevent a court from directing the disposition of the funds after they left the pension administrator).
Exception 2 to Automatic Revocation: After Dissolution, You Designate Your Ex-Spouse As Beneficiary of the Policy or Account
After divorce, as the policy or account owner, you may designate your former spouse as beneficiary. To do that, you sign a governing instrument providing the benefit will be payable to your ex.
When you divorce, you may contractually commit to continue beneficiary designations after divorce for your ex-spouse’s or children’s benefit. Indeed, in the Florida Supreme Court’s approved family law form marital settlement agreements, there is a section that guides divorcing couples through options to make or keep beneficiary designations. See In re Amendments to the Florida Supreme Court Approved Family Law Forms, 138 So. 3d 389 No. SC13-532 (May 1, 2014) and Florida Supreme Court Approved Family Law Form 12.902(f)(1), Marital Settlement Agreement for Dissolution of Marriage with Dependent or Minor Child(ren) (02/18).
Exception 3 to Automatic Revocation: Specific Post-Divorce Designations of Ex-Spouse to Receive Assets Under a Will or Trust
Assets Passing Under a Will
If a will or trust covers the asset, you may specifically designate your ex-spouse as beneficiary of the asset when you die. Section 732.507(2)(b), Florida Statutes permits a specific post-divorce designation of a former spouse in a will as irrevocable beneficiary of an asset. See 2021 amendments to section 732.507(2)(b), Florida Statutes. Laws of Florida, Ch. 2021-183.
Assets Passing Under a Revocable Trust
Similarly, to maintain a trust asset for your ex-spouse’s benefit, section 736.1105, Florida Statutes doesn’t void statements in your revocable trust that refer to and specifically override automatic revocation. Nor does the amended statute void provisions of a revocable trust you may sign after your divorce committing you to designate your ex-spouse as beneficiary.
Exception 4 to Automatic Revocation: Final Judgment of Dissolution or Marriage Provides for No Revocation of Beneficiary Designation of Ex-Spouse
When a final judgment of dissolution requires you to make or keep children of your marriage or your former spouse an irrevocable beneficiary of an asset, automatic revocation doesn’t apply. A court may compel one spouse to maintain the asset for the benefit of a former spouse or children. Examples are death benefits earmarked to secure alimony or child support if you die before your support obligations end.
Exception 5 to Automatic Revocation: Inability Unilaterally to Change Beneficiary or Pay-On-Death Designation
No automatic revocation applies when you can’t unilaterally change the beneficiary or pay-on-death designation for an asset.
Exception 6 to Automatic Revocation: The Law Makes the Designation Irrevocable
When you can’t revoke a designation of your ex as beneficiary under applicable law, Florida’s automatic revocation statutes don’t apply.
Exception 7 to Automatic Revocation: Law of Another State Applies
The automatic revocation of designations under Section 732.703, Florida Statutes, doesn’t apply when laws of a state other than Florida govern the instrument.
Exception 8 to Automatic Revocation: Co-Ownership
Two or more persons own an asset. One owner’s death vests ownership in the surviving owner or owners. The automatic revocation upon divorce statute doesn’t change that result.
Exception 9 to Automatic Revocation: You Remarry Your Ex
You remarry your ex, whose interest would’ve been revoked. You’re still married to each another when you die. Automatic revocation under Section 732.703 doesn’t apply.
Exception 10 to Automatic Revocation: State-Administered Retirement Plans
The automatic revocation statute doesn’t apply to state-administered retirement plans under Chapter 121, Florida Statutes.
Does Section 732.703, Florida Statutes Apply?
- Did the insured die after July 1, 2012?
- Is the asset (e.g., benefit plan) within the scope of section 732.703?
- Did the insured give away the insured’s ownership interest in the asset before the divorce?
- Is there a marital settlement agreement that addresses the asset?
- Does the marital settlement agreement require a former spouse to maintain the asset as security for alimony or child support?
- Is there a final judgment of dissolution that refers to the asset?
- Is there evidence of a testamentary instrument (e.g., last will and testament) naming a former spouse as beneficiary of the asset upon the owner’s death?
- Does the instrument governing disposition of the asset upon death specify the relationship of the beneficiary to the decedent, or provide the beneficiary is not the decedent’s spouse?
If Section 732.703 Apples, Is There An Exception?
- Is the asset controlled by federal law, e.g., 401(k) plans and Keogh plans under the Retirement Equity Act (REA) of 1984; a plan under the Federal Employees’ Group Life Insurance Act of 1954 (FEGLIA); or a plan under the Servicemembers’ Group Life Insurance Act (SGLIA)?
- Is the asset a state-administered retirement plan, under the Florida Retirement System, which applies, for example, to pension plans for state and county officers and employees, law enforcement officers, firefighters, highway patrol workers, correctional officers, and public school teachers?
Consequences of Divorce Specified in Policy or Instrument
- Does the policy or application for insurance address dissolution or annulment?
- Does a will or trust instrument govern the disposition of the asset and, if so, does either section 732.507, Florida Statutes (e.g., a specific post-divorce designation of former spouse in will or obligation in a final judgment to make the former spouse an irrevocable beneficiary) or section 736.1105, Florida Statutes (specific post-divorce designation of former spouse in trust instrument or obligation in a final judgment of dissolution make the former spouse an irrevocable beneficiary?
After Divorce or Annulment, Policy Owner Must Redesignate Ex-Spouse or Children
- Following entry of the final judgment of dissolution or annulment, did the decedent sign a new designation expressly naming the former spouse as beneficiary?
- Does a final judgment or settlement agreement obligate the insured to keep the former spouse or minor children as irrevocable beneficiaries?
- Does the final judgment require the insured to maintain the policy for a former spouse’s benefit or for the benefit of any minor children?
- Under the terms of the final judgment, could the decedent unilaterally have terminated or modified ownership of the asset without anyone else’s prior knowledge and consent?
- Are other assets of the decedent available to fulfill such requirement for the benefit of the former spouse or minor children?
- Is the beneficiary designation irrevocable under applicable law?
- Is the contract or agreement governed by state law other than Florida?
- Does operation of law vest ownership of an asset in one or more surviving co-owners?
- Did the decedent remarry the former spouse and were they married to one another at the time of death?
Get More Information About Post-Divorce Designations
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