Facts: Ex-Husband and Ex-Wife divorced in 2015. Ex-Wife was the designated beneficiary of Husband’s retirement account. Their marital dissolution agreement (“MDA”) said:
The parties agree that they will receive their own separate savings, checking, retirement, or any other accounts that are currently maintained in their name. Husband has a retirement account with TIAA-CREF which shall be the sole and absolute property of Husband. Any marital interest either party has in and to said accounts is hereby divested out of them and vested in the party receiving the account as their sole separate property….
Each hereby waives and relinquishes to the other all rights and claims which each may have or hereafter acquire …, Including without limitation, dower, curtsy, statutory allowance, homestead rights, right to take against the will of the other, inheritance, descent or distribution….
This Agreement shall be binding upon and inure to the benefit of the parties hereto, their personal representatives, heirs, and assigns.
Six years later, Ex-Husband was dying. He executed a power of attorney and asked that person to change the beneficiary designation on his retirement account from Ex-Wife to his estate. His attorney-in-fact submitted documents trying to change the beneficiary designation on Ex-Husband’s retirement account. Despite multiple attempts, TIAA refused to change the beneficiary designation because it required the power of attorney to include language explicitly letting the attorney-in-fact change beneficiary designations on accounts. Ex-Husband died before this could be done.
The will executed one month before Ex-Husband’s death did not name Ex-Wife as a beneficiary of his estate. However, she remained the named beneficiary on his retirement account.
TIAA sent correspondence to Ex-Wife asking for documents to begin the process of transferring the retirement account’s benefits to her. After Ex-Wife completed the necessary documents, she received the proceeds of the account, which totaled almost $270,000.
The personal representative of Ex-Husband’s estate sued Ex-Wife for breach of contract, alleging that her receipt of the retirement account proceeds were a “failure to perform her obligations” under the MDA because she was completely divested of all interest in the account and was required to take action to effectuate that divestment.
Ex-Husband’s estate moved for summary judgment, arguing that there was no need for Ex-Husband to change the beneficiary designation before his death because the MDA divested Ex-Wife of her interest and required her to execute any necessary documents to that effect.
Ex-Wife also moved for summary judgment, arguing that the MDA only divested her of the marital interest she held in the retirement account, but the beneficiary designation was not a marital interest, so the MDA did not impact her capacity to be designated as a beneficiary. Thus, she argued she fully performed the terms of the MDA and did not breach it.
The trial court granted the Estate’s motion for summary judgment, but the order contained no discussions of the caselaw relied on by the parties, nor did it cite any other legal authority in support of its decision.
Ex-Wife appealed.
On Appeal: The Court of Appeals reversed the trial court.
The leading case on this issue is Bowers v. Bowers, which was decided by the Tennessee Supreme Court in 1982. There, the Supreme Court held that an MDA “had no force and effect whatever upon the life insurance policy and neither the agreement nor the divorce terminated the wife’s status as named beneficiary in the policy or her right to receive the proceeds.”
The Court of Appeals then examined the long line of cases following Bowers and the handful of cases that reach a different conclusion by distinguishing Bowers.
For example, the husband in Lunsford v. Lunsford designated his wife as the primary beneficiary of his employer’s pre-retirement death benefit. His three children from a previous marriage were named as contingent beneficiaries. Their MDA stated that each waived any interest in any employment benefit from the other’s employment, including any retirement payment. When the husband died, his ex-wife remained the designated beneficiary. The Court held that the MDA required the ex-wife to execute a waiver and release of the husband’s retirement plan death benefit, such that it was appropriate to divest her of any interest and awarded to the contingent beneficiaries.
For another example, the MDA in Manning v. Manning was interpreted to impose on the ex-wife the continuing duty to waive any rights she may have held in the ex-husband’s retirement account and execute any documents necessary to do so.
Here, the Court distinguished the Lunsford and Manning line of cases and found the MDA was consistent with the Bowers line of cases:
Tennessee courts have consistently applied Bowers in cases involving marital dissolution agreements and their impact on beneficiary designations, drawing no distinction between retirement plans, annuity contracts, and life insurance policies. However, the trial court’s order in this case, granting summary judgment in favor of [Ex-Husband’s] estate, did not mention any of this caselaw, or any other legal authority aside from Tennessee Rule of Civil Procedure 56.
[The Court distinguished this case from Lunsford because] the marital dissolution agreement in this case contains no such language. It only mentioned the retirement account itself. It provided that each party would “receive their own” retirement accounts, and [Ex-Husband’s] retirement account would be his “sole and absolute property.” As such, the case before us is more like Estate of Williams, where “the Williams MDA expressly referred to the annuity contract by name and number” and awarded it to the husband “free of any claim by Wife.” … We held that “[t]his provision awarded [him] sole control of his retirement account and extinguished any marital right or interest [the wife] had in the account,” but “[t]he retirement provision in the MDA did not revoke the beneficiary designation in the [retirement] plan.” The same reasoning applies here.
* * * * *
One final point deserves mention. As the United States Supreme Court observed in 2018,
[C]limbing divorce rates led almost all States by the 1980s to adopt [a certain] kind of automatic revocation law. So-called revocation-on-divorce statutes treat an individual’s divorce as voiding a testamentary bequest to a former spouse…. In doing so, States followed the lead of the Uniform Probate Code, a model statute amended in 1990 to include a provision revoking on divorce not just testamentary bequests but also beneficiary designations to a former spouse. The underlying idea was that the typical decedent would no more want his former spouse to benefit from his pension plan or life insurance than to inherit under his will. So a decedent’s failure to change his beneficiary probably resulted from “inattention,” not “intention.” Agreeing with this assumption, 26 states have by now adopted revocation-on-divorce laws substantially similar to the Code’s.
Tennessee was not among those 26 states.
* * * * *
Our decision in this case is consistent with the body of Tennessee law currently governing the issue before us. [Ex-Wife] did not breach the parties’ MDA by receiving the proceeds of the retirement funds upon the death of [Ex-Husband]. Thus, the trial court erred in granting summary judgment in favor of the Estate on the breach of contract claim.
The Court reversed the trial court’s judgment and remanded the case to the trial court for entry of summary judgment in favor of Ex-Wife.
K.O.’s Comment: The opinion has examples of MDA provisions that avoided the outcome here. For example:
Each spouse hereby further waives and releases except as otherwise provided herein, any right, title, and interest which he or she may have now, or in the future, to any retirement payment or annuity by virtue of his or her being the spouse of the other party, and by virtue of such other party’s employment, or by virtue of any other retirement program, plan, or pension system which may have included the other party in the past, or which may include such other party now, or which may include the other party in the future. To this end, both parties declare that it is their intent that this provision have the same force and effect as if he or she had signed any waiver forms releasing his or her aforementioned interest, but each further agrees to execute whatever documents may be required in this regard in the future, as necessary, to accomplish the purposes heretofore stated.
The language I currently use is a slimmed-down version of this:
Each party expressly relinquishes their status as beneficiary under the retirement plan of the other party, even if said party is specifically named as a beneficiary on said plan and even if their name remains on said plan after the divorce is granted. The failure of a party to change the beneficiary designation on their retirement plan after the divorce is granted shall not be considered a modification of this Agreement. The parties agree that each shall execute and deliver whatever documents may be required in the future to accomplish the purposes heretofore stated.
Family-law attorneys may want to review their form language to make sure it avoids this issue. They would also be wise to include in each client’s postdivorce “to-do list” a reminder to change their beneficiary designations.
If you find this helpful, please share it using the buttons below.