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October 15, 2013 at 09:00 AM
In a recent U.S. Supreme Court case (Hillman vs. Maretta, U.S. Supreme Court, No. 11-1221, June 3, 2013) the Court ruled that a decedent’s ex-spouse, who was still named as his beneficiary, was entitled to receive his federal life insurance benefits. The decision was unanimous, despite the fact that an applicable state law says that an ex-spouse is removed as the beneficiary of a decedent’s various death benefits after divorce. As a result of poor planning, the intended beneficiary was disinherited. No advisor wants this happening on their watch.
In 1996 Warren Hillman named his then-wife, Judy Maretta, as the beneficiary of his Federal Employees’ Group Life Insurance (FEGLI) policy. Two years later, however, the couple divorced.
In 2002, Hillman married Jacqueline. The two remained married untilWarren’s unexpected death in 2008. Despite having divorced Judy some 10 years earlier, and having been married to Jacqueline for six years,Warrennever updated his FEGLI beneficiary form and so, on the date of his death, his ex-wife, Judy, was still his named beneficiary.
While Judy (the ex-wife) was clearly the named beneficiary, thanks to a series of conflicting federal and state laws, a dispute ensued that ultimately called into question who was the rightful recipient of the FEGLI benefits.
AVirginiastate law directly opposed Hillman’s beneficiary designation. Under the law, when a couple divorces, they are no longer treated as one another’s beneficiaries, even if their beneficiary forms say otherwise. This, on its own might lead one to think that Judy would no longer be entitled to receiveWarren’s FELGI benefits.
However, an applicable provision of the Federal Employees’ Group Life Insurance Act (FEGLIA), the federal law that created FEGLI benefits, further contradicts the Virginiastatute. Part of that law explicitly states that its FEGLI contract provisions supersede any state laws that may differ. In that case, the FEGLI beneficiary form would, once again, control who received the benefits.
The U. S. Constitution contains a provision known as the “Supremacy Clause,” which establishes the Constitution and other federal statutes as the supreme law of the land. Under this provision, when federal law and state law are pitted against one another, the federal law is given preference.
U.S. Supreme Court Decision
On June 3, 2013 the U.S. Supreme Court resolved the issue for good, deciding unanimously, 9-0, to affirm the Virginia Supreme Court’s decision to award Judy the FEGLI benefits. In the Court’s opinion, the Virginiastatute holding Judy liable to Jacqueline for the FEGLI benefit “interferes with Congress’ scheme, because it directs that the proceeds actually ‘belong’ to someone other than the named beneficiary…”
The Court also pointed out that many people fail to properly update their beneficiary forms and that this was something Congress has been aware of. Therefore, had Congress desired that FEGLI benefits be awarded to someone other than a person named on the beneficiary form — say, perhaps, a current spouse — they could have passed legislation to do so. Finally, the Court noted that to decide otherwise would be viewing the FEGLI statute so narrowly that states could easily create laws to work around its true intention.
