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Avoiding the avoidable after divorce

When spouses in Texas decide to end their marriage, there are a lot of changes they must make. Some changes are informal, such as taking their ex-spouse's initials off their towels, as the old adage goes. However, other changes are more formal in nature. For example, a case going before the U.S. Supreme Court, makes it clear that it is important to update important documents after a divorce to ensure that a former spouse is not a named beneficiary.

The Court rarely reviews divorce cases. However, it will rule on the validity of Minnesota's revocation-upon-divorce law, which automatically removes former spouses as beneficiaries from life insurance contacts. The issue before the Court is whether this law violates the U.S. Constitution's contract clause, which prohibits laws impairing contract obligations. The Court has not addressed the contracts clause in 25 years.

One year after marriage in 1998, the husband in this case purchased a life insurance policy and named his then-wife as primary beneficiary. His two adult children from his earlier marriage were named as contingent beneficiaries. Minnesota adopted the revocation-upon-divorce statute in 2002.

The couple divorced in 2007. The husband died four years later without removing his former wife as the named primary beneficiary on his insurance policy. The couple's marriage produced no children.

His children from his first marriage argued that they were entitled to the insurance death benefits because Minnesota's law did not violate the contracts clause and they were not a party to the insurance contract. His ex-wife claimed that Minnesota's law violated this constitutional clause.

A federal district court and appeals court ruled in the children's favor. The appeals court relied on its ruling in another case that a similar Oklahoma law violated the contract clause when it applied to a current insurance policy and there was little discretion to adjust the limits of this clause.

Although the Supreme Court is reviewing the validity of a Minnesota law, its decision can have ramifications in Texas and throughout the nation. This case reveals the importance of updating life insurance policies, bank accounts, 401(k) accounts and retirement plans. Failure to update beneficiaries can cause ambiguity, legal disputes and the unintended and unwanted consequence of a former spouse receiving assets.

Source: The Gazette, "Jim Flynn: Divorce case goes all way to high court," Jim Flynn, April 15, 2018

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