Newletter

23 Years After Divorce, Ex-Wife Gets Retirement Money Federal Pension Law Controls Where State Law Directly Conflicts

John names his wife Jane as the beneficiary of his life insurance policy or pension plan, or of his estate in his will. John and Jane get divorced, and John marries Susan. John dies, but he failed to remove Jane as beneficiary and name Susan. Who gets the money: Jane or Susan or John's estate?

The answer, like so many when it comes to questions of law, is "it depends." The answer may depend upon the instrument (is it an insurance policy or a will?), the State in which the decedent was a resident at his death (not all states' laws are the same!), even when the instrument was created (bringing to bear the question of ex post facto laws-a subject for another time, perhaps).

Richard MacAnally and Imogene Levin were married in 1967. In 1972, Richard became a member of the faculty at the California Institute of Technology. At that time, Richard executed two annuity contracts issued by Teacher's Insurance and Annuity Association and College Retirement Equities Fund (TIAA-CREF). He named Imogene as beneficiary of those annuity contracts.

Cal Tech made contributions to the annuity contracts until 1974 when Richard ended his employment with Cal Tech. That year, also, he and Imogene divorced, and as part of the property settlement, Richard received the annuity contracts as his sole and separate property.

In 1987, Richard remarried. Before he retired, he died in 1997, a resident of Colorado, still married to his second wife. However, at the time of his death, Imogene remained as the beneficiary designated on his TIAA-CREF annuity contracts.

After Richard's death, Imogene sought Richard's annuity plan benefits. Richard's estate likewise asserted a claim to them, contending that Colorado law automatically revokes any beneficiary designation of a spouse from whom a decedent was divorced at the time of death.

Who gets the money? The Colorado Court of Appeals held that even though Richard and Imogene had been divorced for 23 years, Imogene was entitled to the money, despite the express provision of Colorado law that revoked the beneficiary designation upon their divorce.

Choice of Law: State or Federal

In this case, the issue before the Court of Appeals was which law controls. Employee pension benefit plans, which these retirement annuity contracts undoubtedly were, are governed by the Employee Retirement Income Security Act (ERISA), a federal law enacted in 1974 in order to make the law pertaining to pension benefits uniform.

Although Richard would not become eligible to draw on the annuity contracts until his retirement, well after 1974, Richard's executor argued that ERISA did not apply, because the annuity contracts were created in 1972 and Richard and Imogene were divorced prior to ERISA's effective date (January 1, 1975).

The Court of Appeals disagreed, stating that Richard's death in 1997 and his failure to change the beneficiary designation after his divorce make ERISA the applicable law in determining whether Imogene is entitled to the money.

Under ERISA, a beneficiary may bring a cause of action to recover benefits due to her under the terms of the pension plan. ERISA imposes a fiduciary duty upon a plan administrator to pay plan benefits to the entitled employee or designated beneficiary in accordance with the terms of the plan.

Richard's estate argued that the Colorado divorce revocation statute should be applied. Again, the Court disagreed.

Pursuant to ERISA and Richard's TIAA-CREF contract, the plan administrator must pay a death benefit to the beneficiary named in the plan if the plan participant dies before retirement. In direct contrast, the divorce revocation statute changes the beneficiary to whom benefits are paid from the beneficiary designated in the plan -- Imogene, to an unnamed beneficiary -- Richard's Estate. Under the doctrine of preemption, ERISA preempts the divorce revocation statute. The money goes to Imogene.

Estate of Richard B. MacAnally, March 30, 2000.