If you’re thinking about separation and divorce, you should also be thinking about estate planning following divorce. Where there is heightened emotions, it’s something that is easy to forget. But failure to reconsider your estate planning following divorce can have some serious consequences.

Sveen v Melin

In 1997, Mark Sveen married Kaye Melin. The next year, Mark purchased a life insurance policy from MetLife and named Kaye as the primary beneficiary, with his two adult children from a prior marriage, Ashley and Antone, as secondary beneficiaries. (Mark and Kaye had no children together.) In 2002, Minnesota, where the couple lived, adopted a revocation-upon-divorce statute applicable to life insurance beneficiary designations, a law that would automatically revoke the life insurance beneficiary status of former spouses upon the couple’s divorce. Five years later, Mark and Kaye divorced, and Mark died in 2011, without removing Kaye as the named primary beneficiary on the MetLife policy.

Kaye argued that Minnesota’s revocation-upon-divorce statute, as applied to her situation, was unconstitutional because of the “contract clause” of the U.S. Constitution. The contract clause says “No state shall pass any Law impairing the Obligations of Contracts.” She argued that she should get the money.

Ashley and Antone argued the Minnesota statute didn’t violate the contract clause and they should get the money. They said Kaye was not a party to this contract, which was between Mark and MetLife and remained in effect.

The insurance company filed a request with a federal district court, asking the court to determine whether Melin was still the beneficiary or whether Sveen’s children had become the beneficiaries following Minnesota’s 2002 amendment.

estate planning following divorce, estate planning, wills, divorce, separation, divorce lawyers brisbaneAshley and Antone won at the district court. But Kaye appealed to the 8th Circuit Court of Appeals and prevailed. The 8th Circuit panel decided it had to follow an earlier ruling by another panel in the same court that ruled that an Oklahoma statute functionally identical to the Minnesota statute had violated the contract clause when it was applied to an existing insurance policy.

The court added that while the earlier case pertained to an Oklahoma statute, “both it and the Minnesota statute have the same effect: to disrupt the policyholder’s expectations and right to ‘rely on the law governing insurance contracts as it existed when the contracts were made.’” In other words, at the time Sveen designated Melin as the beneficiary, the revocation-upon-divorce statute did not apply; the law at the time required Sveen to take action to remove Melin from the policy if he did not want her to benefit, regardless of whether they divorced. The court concluded that the state could not reach back and retroactively change the rules that applied when Sveen had entered into the life insurance policy contract. The court wrote that Sveen’s rights were at issue, not Melin’s: “What matters are the policyholder’s rights and expectations, not any interest of the beneficiary.”

Ashley and Antone appealed, and the U.S. Supreme Court agreed to hear the case. Oral argument was in March, and a ruling will come later this year.

The lesson in this for divorcing couples is – don’t take chances. Estate planning following divorce can remove the need for time-consuming and costly court battles.

Estate Planning Following Divorce

Update your will

While you are separated (not yet legally divorced), your existing will is still valid and will be enforced. So if you pass away, your ex-spouse will still receive everything you had intended.

Divorce affects your will differently depending on where you live in Australia. It’s often best to make a new will clearly stating your wishes for your estate.

Appoint a new Executor

If you had nominated your ex-spouse as the Executor of your will, this nomination also becomes void on divorce. Without an Executor, the Court will appoint someone to administer your estate, which could mean your estate is not handled in the way you wished.

Rethink your beneficiaries

When you set up many of your assets, you would have been asked to name a beneficiary – the person you  would like your asset to be paid out to in the event of your death. It’s likely that you nominated your ex-spouse, so it’s time to change it. Start with your superannuation and life insurance.

Delegate a new power of attorney

It’s also important to change your power of attorney nomination if it was previously allocated to your ex- spouse. Your power of attorney may make decisions on your financial, legal and health matters if you can’t make them yourself. Delegate this power to someone you trust – a parent, friend, sibling, or an adult child.

If you need help with estate planning following divorce, make sure you contact us today. We can offer advice in both areas of the law and we offer a FREE, 10-minute phone consultation.