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Supreme Court Rules on non-probate assets

The United States Supreme Court recently ruled in favor of adult children in a case where the non-probated insurance policy of a Minnesota man had listed an ex-wife as the beneficiary when he purchased it in 1998. The decedent, who died in 2011, had divorced his wife in 2007. 

In 2002, Minnesota like many states amended its probate law to include life-insurance designation in a “revoked upon divorce” statute. Nevertheless, the wife and the adult children in this case both made claims for the proceeds. While a federal judge ruled in favor of the children, that decision was reversed by the Eighth Circuit in 2017. The children then appealed the decision to the Supreme Court.

The Supreme Court Ruling

The crux of the argument was that the contract written at the time of purchase listed the wife and that contract should be honored. The Minnesota law did not come into effect until several years after the original contract was entered into. Ruling 8-1 in June of 2018, the nation’s highest court determined that the future revocation upon divorce statute does not violate the contract’s clause.

The three reasons given were:

  • The subsequent statute’s intent is to reflect the contractual scheme
  • The subsequent statute is unlikely to upset the policyholder’s expectations
  • The subsequent statute supplies a default rule, which  can be easily changed by the policyholder

Here in Colorado

Colorado statutes determine that divorce or annulment revokes beneficiary designations to a former spouse. However, the couple may agree that the ex-spouse is to receive the benefits as part of the settlement of the estate. If no such arrangement is in place, children or heirs who find out that an insurance policy was not updated should notify the insurance provider in writing that there has been a divorce prior to death.

This process can take some time and attorneys can often help guide families through these kinds of disputes and others involving the division assets in divorce. There are a number of other similar pieces of necessary paperwork that are easy to put off but important to address. Please see our post on this topic for additional information. In any case, it is necessary to redo estate planning documents once a divorce has concluded.

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