The article is not a substitute for legal advice.
Many of you may not remember John McLaughlin the host of the long-running public affairs show The McLaughlin Group, for those that do not the video clip above will give you a taste of his show. McLaughlin passed away in 2016. Before passing away, Mr. McLaughlin had divorced Christina Vidal, his wife, in 2010. After this divorce, Mr. 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 is the sole beneficiary of the life insurance policies. The outcome, in this case, was favorable to the estate, it is an important reminder that you need to update beneficiaries after important life events.
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. In the agreement, the couple agreed 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. McLaughlin passed away in 2016 leaving no surviving spouse or children. Vidal moved to Connecticut after the divorce.
McLaughlin’s niece was named his personal representative and filed a suit seeking to the estate to be named the sole beneficiary of both life insurance policies. Vidal was served personally with the complaint but has failed to answer to the suit. The estate is now seeking 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 one party does not respond in a court case.
The court first needed to clarify that the federal district court in D.C. 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 that a federal court can hear are ones between residents of two different states and the amount in the case exceeds $75,000. Here the estate is deemed to be a resident of the state where McLaughlin lived at the time of his death, here D.C. and Vidal was a resident of Connecticut. The life insurance policies both were for values over $75,000. The court found that diversity jurisdiction did exist in this case.
The court then turns to the issue of who should be the beneficiaries of the life insurance policies. The estate argues 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 avoids looking at this issue because of the existence of a prenuptial agreement.
D.C. courts’ prior decisions require convincing evidence that a divorce and settlement agreement intends to deprive a named beneficiary (here Vidal) of the interest in the life insurance policy. Here the court finds that the prenuptial agreement is 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 that explained 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. To the court, this language showed the parties meant for a divorce to terminate Vidal’s beneficiaries 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.
What happens now in this case? 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. Personal jurisdiction is the power of the court over a defendant. Typically for a court to find the court has personal jurisdiction over a defendant, the court must find that the defendant has sufficient minimum contacts with the state (here 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), a 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, then you want to make sure that 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 might have so its worth remembering to update your farm succession plan after major life events, like a divorce.
McLaughlin v. Hartford Life & Annuity Insurance Co., No. 17-cv-500, 2017 WL 4863064 (D. D.C. Oct. 25, 2017).