What appears to be a simple estate planning mistake is now a case being decided by the United States Supreme Court. The nine justices recently heard arguments in a case with a mix of family law and estate planning issues in deciding whether a man's federal employee life insurance policy should be paid to his ex-wife or his widow.
The man named his current wife as the beneficiary on the insurance policy, which typically will override a contradictory statement in a will or divorce decree. When the two divorced several years later, he did not change the policy to benefit someone else or to go into a trust. As a result, his ex-wife received the money from the insurance policy when he passed away.
In this case, his widow says that she should have been paid by the life insurance policy because a state law overrides the general rule about life insurance policies and will allow a current spouse to inherit instead of a divorced spouse in these types of situations.
If someone truly wants their former spouse to benefit from the insurance policy instead of their current spouse, they can make a new designation to that effect after the divorce. That did not happen in this case.
The case is a complicated web of state and federal law, and the issue is which law should control. Typically the states have dominion over domestic relations laws which includes marriage, divorce, child custody, and estate planning. In this case the line between controlling federal and state law isn't completely clear, so the court will ultimately make the decision about who will inherit.
Most Florida residents would prefer to make their own choices about who receives their assets and insurance policy payouts when they pass away, rather than leaving the decision up to nine robed strangers in a marbel courthouse far away. This is why it is so important to keep estate plans up to date when a new baby is born, someone is married, or a divorce happens.
Source: Washington Post. “Will the widow or the ex-wife get the money? Supreme Court to decide,” Diana Reese, April 22, 2013.