US Supreme Court: Beneficiary Designations Matter

June 3, 2013

Today the US Supreme Court ruled that when federal employees designate beneficiaries on their federal life insurance that the Virginia General Assembly cannot override it.  See Hillman v. Maretta.

In 1996 Mr. Hillman, a federal employee, submitted a beneficiary designation form for his federal life insurance that named his then wife Judy Maretta. They divorced two years later. In 2002 he married Jacqueline. Six years later, within a few days of being diagnosed with leukemia, he died. His Last Will and Testament named his widow Jacqueline as the beneficiary of his estate. Read the story here.

Generally, a beneficiary designation would determine who would receive the benefit. However, Virginia enacted a law that provides upon a divorce or an annulment a revocable beneficiary designation that named the now ex-spouse was automatically revoked and the benefits were to be paid as if the ex-spouse had predeceased.

Virginia applied its automatic revocation to death benefits for life insurance, an annuity, retirement arrangement, compensation agreement, or other contract. Knowing that a state cannot preempt federal law, the Virginia law attempted to create a carve out so if the ex-spouse received a federal death benefit payment, the ex-spouse was personally liable to pay the beneficiary who would have received the benefit if the ex-spouse had not survived.

When Mr. Hillman’s widow applied for her husband’s FEGLI benefits, her claim was rejected. Citing the Virginia statute, she appealed to the Fairfax Circuit Court, then the Virginia Supreme Court, and finally the US Supreme Court.

Today the US Supreme Court told the widow no. The ex-wife – as the designated beneficiary – is entitled to keep the federal life insurance proceeds. The Court also reminded the Virginia legislature that it cannot override Congress in an attempt to make the ex-spouse pay the federal benefits received to the widow.

This ruling is not limited to FEGLI, but applies to other federal life insurance such as National Service Life Insurance and Servicemen’s Group Life Insurance. The Court stated the distribution of federal life insurance is governed by the beneficiary designation on file. A divorce decree will end many things, but it does not change federal beneficiaries.

If you or someone you know has a life insurance policy, federal or not, take the time to check the beneficiary designation on file. It is also good to check designation on other assets such as retirement benefits. For questions about beneficiary designations, contact an estate planning attorney.

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