In more news on life insurance beneficiaries .... New York state law provides that a divorce automatically revokes a beneficiary designation to a spouse unless the divorce decree clearly states otherwise. In Estate of Sugg, the decedent died in 2013 leaving a will that named his sister Janet as Executor. He divorced Ursula Sugg in 2002 and didn't remarry. Their divorce settlement provided for their assets to be divided 60%/40% in the decedent's favor. The original divorce judgment directed a 40% distribution of the life insurance policy to Ursula, but the parties later realized that the life insurance company could not divide the policy as anticipated because it was an annuity. The court then entered an order declaring that Ursula was entitled to $47,289.60 from the policy, which was set off by a $39,000 debt Ursula owed to Joseph. The court's order provided that Ursula's 40% share of the policy was to be reduced and netted out so that the decedent only had to pay her $7,928.96. The Surrogate Court noted that "[i]n effect, the [order] directed a net cash buy-out by decedent of Ursula's equitable/matrimonial share of the policy."
The order then stated that the entire balance remaining in the policy account was Joseph's sole and separate property and directed that Ursula's name be removed as beneficiary on the account. However, at the time of Joseph's death, her name remained designated as beneficiary.
Janet commenced a "turn over" proceeding pursuant to SCPA 2103 to compel Ursula to turn over the death benefits she had received. Janet argued that under New York's EPTL 5-1.4(a)(1), Ursula's entitlement to the policy proceeds as beneficiary terminated on her divorce from Joseph. The issue presented to the Surrogate Court was "whether a former spouse's pre-divorce beneficiary designation on a life insurance policy is revoked under EPTL 5-1.4 when a post-divorce court order specifically points out the right of the policy owner/spouse to remove his former spouse as beneficiary but he does not do so."
EPTL 5-1.4(a)(1) provides:
Except as provided by the express terms of a governing instrument, a divorce .. revokes any revocable (1) disposition or appointment of property made by a divorced individual to, or for the benefit of, the former spouse, including, but not limited to, a disposition or appointment by will, by security registration in beneficiary form (TOD), by beneficiary designation in a life insurance policy ....
Ursula argued that the order gave Joseph the right to remove her as beneficiary, but he failed to do so. She maintained that the order trumped EPTL 5-1.4(a)(1), and that she as ex-spouse was not automatically removed as the beneficiary.
The executor argued that the order did not clearly direct that Ursula was to remain beneficiary of the policy. The executor further argued that as a matter of law EPTL 5-1.4 automatically revoked Ursula's right to death benefits as the beneficiary despite the decedent's failure to remove Ursula as beneficiary, which was then of no consequence.
The parties quibbled about what was the "governing instrument" referred to in the statute - the Executor said the "governing instrument" was the policy itself; Ursula contended the "governing instrument" was the court order.
Nonetheless, the Erie County Surrogate agreed with the Executor and directed the ex-wife to return the policy proceeds to the estate.