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Life Insurance and Retirement Proceeds Does A Will Control Their Distribution?

| Jan 17, 2021 | Firm News

Written By: Robert L. Buzzendore, Esquire

On December 14, 2020, in Goodwin v. Goodwin, the Superior Court entered an important decision regarding life insurance and IRA proceeds in a divorce case.  Goodwin v. Goodwin, 2020 PA Super 284, 2338 EDA 2019.  The issue was whether IRA and life insurance proceeds paid to a spouse during marriage were marital property subject to distribution under the divorce laws.  If the proceeds were not marital property, they would not be subject to distribution between husband and wife when they divorced.  The Superior Court held the proceeds were not marital property.

The law defines “marital property” as “all property acquired by either party during the marriage”. 23 Pa.C.S. 3501. There are exceptions to this definition including property acquired by bequest, devise or descent. A bequest is a gift of personal property and a devise is a gift of real estate.

The Goodwins married in 1990.  Wife had a son from a prior relationship.  Although Wife filed for divorce in 2009, they reconciled.  Wife’s son died in January 2017, and the parties separated in March 2017.

Son had four life insurance policies through his employer and an IRA. Son named his mother as sole beneficiary of the life insurance policies and IRA.  Wife received $633,301.72 from the life insurance and $8,216.51 from his IRA.  Son did not name husband (stepfather) as a secondary beneficiary.

Husband claimed the insurance proceeds were marital property even though he agreed Wife did not place the life insurance and IRA benefits into a joint account; wife used part of the proceeds to purchase a home solely in her name; and, wife placed the balance into her bank accounts. Husband also agreed her son used his own funds to pay for the life insurance policies and the deposits into his IRA account.

Instead, husband claimed the proceeds were not a bequest, devise or descent under section 3501 because they passed to the beneficiary outside the scope of the laws governing a deceased person’s estate.  As a result, the proceeds did not satisfy the section 3501 language which excluded a bequest, devise or descent from marital property.  One Superior Court judge agreed with husband and filed a dissenting opinion.

The remaining two judges of the Superior Court held the proceeds were not marital property.  It explained the intent of section 3501 was to exclude property transferred or given to one spouse from the definition of marital property.  In other words, if property was given to both spouses, it was marital property, but if it was only given to one spouse, it was not marital property.

The Court further reasoned the proceeds were a gift which vested at the time of death.  Furthermore, the intent to make a gift to one spouse was clear when the person did not designate any secondary or contingent beneficiary.  The Court held if it did not treat the proceeds as a gift, chaos could ensue because some forms of gifts to one spouse would be considered marital property while other forms of gifts would not be marital property, and this could thwart the giver’s intent.

The Court’s policy reason to consider the proceeds as non-marital property were probably based on the facts in this and other real-life scenarios.  Deceased son did not have a good relationship with stepfather, and it is doubtful he would have designated his mother as beneficiary if he knew stepfather could obtain a substantial portion of those proceeds if the parties divorced.  Son could have used other planning techniques to avoid stepfather’s claim against those funds.

This is a very important decision because many people use beneficiary designations as a way to distribute life insurance and retirement proceeds upon death.  A Will does not control the distribution of these funds, and as noted above, it is doubtful a person would name a spouse as a beneficiary if he or she knew the other spouse could claim a portion of those proceeds in the event of a divorce.

As of January 4, 2020, husband has not requested re-argument with the Superior Court and he has not asked the PA Supreme Court to consider the case, but the time to request such matters does not expire until January 14, 2021.

Hoffmeyer & Semmelman is always available to assist you in your family law matters.

© Copyright by Hoffmeyer & Semmelman LLC,  January 2021