Divorce can be a painful and exhausting procedure, during which many details may get lost and forgotten. This was probably the case with David Egelhoff, who died intestate only six months after he and his wife Donna divorced. In that six months, he did not remove her as the main beneficiary of his pension plan and life insurance policy. It is possible that David was relying on a Washington statute that provides that the designation of a spouse as beneficiary of a non-probate asset is revoked automatically upon divorce.

David’s children from a previous marriage filed suits to recover the insurance proceeds and pension benefits. The trial courts refused their claims, concluding that both the insurance policy and the pension plan should be administered in accordance with the Employee Retirement Income Security Act of 1974 (ERISA), which pre-empts many state statutes governing the administration of such plans and policies. But the Washington Court of Appeals and State Supreme Court both reversed the trial courts’ rulings and concluded that the state statute automatically removing Donna as beneficiary was not pre-empted by ERISA.

Unfortunately for the children, the U.S. Supreme Court majority disagreed and reversed the State Supreme Court’s ruling and held that ERISA pre-empts the state statute to the extent it applies to ERISA plans. Donna, therefore, was not disqualified as beneficiary of the pension benefits and insurance proceeds.

In a dissenting opinion, Justice Breyer stated that in forbidding Washington to apply its statutory assumption that divorce revokes the designation of an ex-spouse as beneficiary of non-probate assets, “the Court permits a divorced wife, who already acquired, during the divorce proceeding, her fair share of the couple’s property [including a business, an IRA, and stock], to receive in addition the benefits that the divorce court awarded to her former husband. . . . As a result, Donna will now receive a windfall of approximately $80,000 at the expense of David’s children. The State of Washington enacted a statute to prevent precisely this kind of unfair result."

Nevertheless, the Court ruled against the statute and against the children. Any attorney who works with divorcing spouses should remind them to update beneficiary designations regardless of any such state statutes.