Keep Those Beneficiary Designations Updated!

I have been doing some research on Federal preemption of California community property law by ERISA. If you are still awake after reading that, you'll love what's next:

In Emard v. Hughes Aircraft the Federal Ninth Circuit Court of Appeals held that ERISA law does not preempt California community property law. While that might not move you to dance in the streets with joy, consider the facts of the case. Wife married Husband 1 in 1975 and named him as the beneficiary of the life insurance policy she received from her job at Hughes Aircraft in 1981. Wife and Husband 1 divorced in 1985. Wife then married Husband 2 in 1986. She never changed her beneficiary designation even though she purchased additional insurance through Hughes while she was married to Husband 2 (that means Husband 1 was the named beneficiary on the new policy as well). Wife died in 1995 without an estate plan. Husband 2 sued Husband 1, among others, to get the benefits of the life insurance policy she purchased while married to Husband 2.

This case is significant not because of the issue of federal ERISA preemption, but because it shows what a mess can be created if you do not keep your beneficiary designations current. Think of how much in attorneys fees were generated in suing for the benefits, losing, and then appealing.

Remember: you should review your designations every year, and certainly when you get married, divorced, widowed, or when you have children. This is probably not the first thing on your mind when these events occur, but the consequences of ignoring it can be pretty serious.

Death, Divorce and the Surviving Spouse

Recent case law is a trove of potential blog topics. Estate of McDaniel (2008) 161 Cal.App.4th 458 (if you're keeping score) addressed the intersection of death and divorce. The court held that the wife was not a "surviving spouse" where the husband died after the two had instituted divorce proceedings, divided their property pursuant to a stipulated judgment, but where the final termination of the marriage was not yet in effect.

Husband and wife entered into a stipulated judgment in July 2005 dividing their property and dissolving their marriage, with the final termination to become effective in October 2005. In the meantime, the couple tried to reconcile and signed, but did not file, a dismissal of the dissolution action. Husband died in a motorcycle accident in September 2005.

The court held that because the couple had separated their community property, confirmed their separate property, and accounted for and waived their marital property rights, the wife was not entitled to inherit husband's estate because she was not a surviving spouse pursuant to probate code section 78.

Estate planning is geared toward expecting the unexpected. That extends to estate planning's intersection with family law. Here, had the couple filed the dismissal of the divorce before husband's untimely death, the court would likely have held that wife was entitled to inherit the estate. As an attorney, this is obvious, but I'm sure that husband and wife's priorities were a little different.