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You may or may not remember John McLaughlin, the host of the long-running public affairs show The McLaughlin Group; for those who do not, the video clip above will give you a taste of his show. McLaughlin passed away in 2016. Before his death, McLaughlin had divorced his wife Christina Vidal in 2010. After this divorce, McLaughlin neglected to change two life insurance policies beneficiaries from his now-ex-wife to an immediate family member. In late 2017, the federal district court in D.C. ruled that his estate was the sole beneficiary of the life insurance policies. The outcome, in this case, was favorable to the estate and is an important reminder to update beneficiaries on your insurance policies after important life events.
Background
Our story began in 1996 when McLaughlin designated Vidal as a beneficiary on two life insurance policies before their marriage. In 1997, the couple signed a prenuptial agreement which stated that in the event of a divorce, a $1 million lump sum from McLaughlin to Vidal would settle all property rights arising out of the marriage. The couple divorced in 2010 and the court found that the prenuptial agreement was fully enforceable. Vidal moved to Connecticut after the 2010 divorce. McLaughlin passed away in 2016 leaving no surviving spouse or children.
McLaughlin’s niece was named his personal representative and filed a suit seeking that the estate be named the sole beneficiary of both life insurance policies. Vidal was served personally with the complaint but failed to answer to the suit. The estate sought a declaratory judgment that the estate is the sole beneficiary of the two policies. A declaratory judgment is where the court decides the rights of the parties, but does not do anything towards damages in a case. One party often seeks a declaratory judgment when the other party does not respond in a court case.
Court’s Decision
The court first needed to clarify that the D.C. federal district court was the appropriate court to hear this case. Federal courts have limited jurisdiction, meaning a federal court can hear only certain cases. Have you heard the expression, “Make a federal case out of something?” Well, only special cases can be made federal cases. One area of disputes which a federal court can hear is between residents of two different states with the amount in the case exceeding $75,000. Here the estate is deemed to be a resident of the state where McLaughlin lived at the time of his death, D.C., while Vidal was a resident of Connecticut. The life insurance policies each had values over $75,000. The court found that diversity jurisdiction did exist in this case.
The court then turned to the issue of who should be the beneficiaries of the life insurance policies. The estate argued that the doctrine of implied revocation should be applied here. This doctrine typically applies when there is a divorce and division of property revokes a former spouse’s status as a beneficiary under a will. The problem here is that a D.C. court had never applied this doctrine on a document other than a will. The court avoided this issue focused on the prenuptial agreement.
D.C. courts’ prior decisions required convincing evidence that a divorce and settlement agreement intended to deprive a named beneficiary (here Vidal) of the interest in the life insurance policy. Here the court found that the prenuptial agreement was convincing evidence to terminate Vidal’s interest in the life insurance policies. The court, looking at the divorce, enforced the agreement and incorporated the prenuptial agreement into the divorce decree. The divorce decree stated that the prenuptial agreement served to resolve all issues between McLaughlin and Vidal.
The prenuptial agreement also contained a waiver clause explaining both parties waived rights as a beneficiary under a variety of instances including “survivor annuity” and form of a lump sum death benefit. To the court, the language showed that the waiver of rights applied to those arising as a spouse and showed the parties meant for a divorce to terminate Vidal’s beneficiary’s rights in the life insurance policies. Remember the couple bought the policies before marrying and McLaughlin and Vidal could have specifically pointed out that Vidal’s rights as a beneficiary should exist beyond a divorce. The court found that the estate was the proper beneficiary of both life insurance policies.
Why Care?
What happens now? Vidal may not like the outcome of this case, even though she has yet to respond to anything in the case. This can often be a strategy to preserve the ability to claim later that the federal district court in D.C. does not have personal jurisdiction over Vidal. Typically for a court to find it has personal jurisdiction over a defendant, the court must find the defendant has sufficient minimum contacts with the state (D.C.) and hearing the dispute in that state would not offend traditional notions of fair play and justice. In disputes involving diversity jurisdiction (residents of multiple states), an out-of-state defendant may claim the court does not have personal jurisdiction to hear the dispute.
Looking at this dispute, the court found that dispute arises from a transaction Vidal had in D.C., naming Vidal as a beneficiary. To the court, deciding if Vidal was a beneficiary of the life insurance policies did not offend traditional notions of fair play and justice. Vidal may seek to appeal this finding of personal jurisdiction by the court.
This post is to remind you that when a life event happens, check policies, wills, and other agreements to update important pieces. If you get divorced, you want to make sure the divorced spouse is no longer a party to your farm succession plans. Forgetting to remove a divorced spouse can potentially cause problems down the road for your survivors. Properly removing divorced spouses saves the problem faced by McLaughlin’s estate.
A court may not always be sympathetic to claims to remove a divorced spouse from a will or life insurance policy. What would have happened if McLaughlin bought the policies after his marriage? Would that have potentially changed the outcome of the case? It very well might have, so it’s worth remembering to update your farm succession plan after major life events, like a divorce.
Reference
McLaughlin v. Hartford Life & Annuity Insurance Co., No. 17-cv-500, 2017 WL 4863064 (D. D.C. Oct. 25, 2017).