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Can a Former Spouse Keep Life Insurance Proceeds She's Waived if Former Husband

Forgets to Change Beneficiary on the Policy?

By: Jeanne M. Hannah, J.D. Copyright 2005

 

Jeanne M. Hannah is a family law lawyer located in Traverse City, Michigan, who handles divorce, child custody, paternity, adoption, neglect, and other family law matters, and who assists fathers and mothers to exercise their rights to custody and parenting time.

 

In Sweebe v Sweebe, Michigan Supreme Court Docket No. 126913, decided on April 26, 2006, the Michigan Supreme Court held that a former wife who had waived her right to life insurance proceeds could not retain those proceeds that had been delivered to her by the Plan Administrator of an employer-provided life insurance policy when the former husband had failed to change the name of the beneficiary prior to his death.

 FACTS AND PROCEEDINGS

 In 1986, the Plaintiff, Marilyn V. Mason (formerly Marilyn V. Sweebe) and the decedent, Herbert 0. Sweebe, were divorced. Their JOD included a provision by which each  agreed to give up any interest he/she had in any insurance contract or policy of the other:

 “IT IS FURTHER ORDERED AND ADJUDGED that any interest which either of the parties may now have or may have had in any insurance contract or policy, and any other interest in any insurance contract or policy of the other party, shall be extinguished, and that the parties shall in the future hold all such insurance free and clear from any right or interest which the other party now has or may have had therein, by virtue of being the beneficiary, contingent beneficiary or otherwise.”

Herbert had a life insurance policy provided by his employer. In 1963, (23 years prior to divorce), he’d designated his spouse (plaintiff) as the beneficiary. As so often occurs, he never changed this designation after the parties’ divorce. Therefore, when Herbert died in 2001, the insurance plan administrator paid the insurance policy proceeds to Marilyn because she was listed as the named beneficiary.

 Herbert’s surviving spouse, defendant Gail Sweebe, was appointed personal representative of his estate. She filed a motion to enforce the waiver in the judgment of divorce on behalf of the estate. The circuit court denied the motion because it held that ERISA preempted the waiver. 

Michigan’s Court of Appeals (COA”) reversed the order of the trial court in a peremptory order and remanded for entry of an order directing Marilyn to pay the decedent’s estate an amount equal to the insurance proceeds. The COA held that plaintiff could not retain the life insurance proceeds because she had expressly waived any entitlement to the proceeds in the consent divorce judgment. Marilyn sought leave to appeal to the Michigan Supreme Court (“MSC”), which was granted.

 The MSC recognized that, under ERISA preemption, Michigan law cannot control the  determination of the proper beneficiary and that ERISA requires a plan administrator to distribute the proceeds of an insurance policy to the named beneficiary. Thus, the MSC recognized that the Plaintiff in this case was entitled to receive the insurance proceeds because the decedent designated her as the beneficiary. Marilyn’s waiver of her rights under the insurance contract did not change the Plan administrator’s duty to distribute the proceeds to Marilyn and thus there was no ERISA preemption involved.

 However, the MSC then went on to state that once she’d received the benefits, the only other  issue in this case solely involves Michigan law concerning waiver – which does not implicate ERISA. To emphasize the basis for the MSC’s position, the Court then stated: 

“Plainly, the issue is whether plaintiff, having lawfully renounced her interest in the insurance proceeds in a binding judgment of divorce, may lawfully retain them. This issue is governed exclusively by Michigan law because the proceeds have been properly distributed under ERISA.”

 The Michigan Supreme Court stated that its decision  

“does not invade the purview of ERISA because the plan administrator is still only required to do that which ERISA explicitly directs the administrator to do—distribute the proceeds to the named beneficiary.” 

But the Court’s analysis did not end there. Once a plan administrator pays benefits to the named beneficiary as is required by ERISA, the Court held that  

“this does not mean that the named beneficiary cannot waive her interest in retaining these proceeds. Once the proceeds are distributed, the consensual terms of a prior contractual agreement may prevent the named beneficiary from retaining those proceeds.” 

Then the MSC, after analyzing several similar cases in other federal and state courts, upheld the COA and ordered that Marilyn pay to Herbert’s estate an amount equal to the life insurance proceeds that the plan administrator has distributed to her.

 The MSC recognized that parties have a broad freedom to contract and to intentionally relinquish known rights. The JOD provision quoted above was then found by the MSC to constitute a valid waiver of rights by Marilyn to retain the benefits from the insurance contract. That court affirmed the COA order, concluding that since Marilyn had no legal right to retain the proceeds, she must pay an amount equal to the insurance proceeds to the decedent’s estate, which will then distribute the proceeds according to the decedent’s will or the laws of intestacy.

 To read the entire decision in Sweebe v Sweebe, click here.

Email: jeannemhannah [at] charter.net

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Jeanne M. Hannah, Family Lawyer
Postal address:5922 Deer Trail Drive, Traverse City, Michigan 49684 • E-mail: jeannemhannah [at] charter.net
 
Practice Areas: Divorce  Custody  Parenting Time  Child Support Post-Judgment Modifications  Paternity  Adoption  Personal Protection Orders  Spousal Support  Property Distribution  Pre-Nuptial / Post-Nuptial Agreements Estate Planning Guardianships/Conservatorships  Neglect/Abuse Cases 

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