Destructive Federal Preemption of State Wealth Transfer Law in Beneficiary Designation Cases: Hillman Doubles Down on Egelhoff

32 Pages Posted: 2 Oct 2013 Last revised: 24 Nov 2014

John H. Langbein

Yale University - Law School

Date Written: October 1, 2013

Abstract

Many state probate codes contain a so-called divorce revocation provision, applicable both to probate and non-probate transfers. Such statutes address the situation in which a transferor’s will or will substitute designates as a beneficiary a person who was the transferor’s spouse at the time that the transferor executed the document, but whom the transferor later divorced. The premise of these statutes is that divorce entails a profound change of circumstances not foreseen by the transferor, and that the transferor is unlikely to have intended to benefit an ex-spouse. Accordingly, the intent-implementing purpose of wealth-transfer law is better served by a default rule that treats the subsequent divorce as having revoked any provision for the now-ex-spouse unless the document expressly provides otherwise.

In Egelhoff v. Egelhoff, 532 U.S. 141 (2001), the Supreme Court held that when the instrument of transfer is a beneficiary designation in a pension plan or life insurance policy subject to federal regulation under the Employee Retirement Income Security Act (ERISA), the otherwise applicable state divorce revocation statute is preempted, even though ERISA makes no mention of divorce revocation. The Court reasoned that enforcing the state divorce revocation statute would "interfere with nationally uniform plan administration."

Because the result in Egelhoff allowed supposed plan-level administrative convenience to defeat the principled objective of the divorce revocation statutes, a number of courts reacted by allowing so-called post-distribution relief, in some cases pursuant to a state statute so providing. Obeying Egelhoff, these courts preempted the state divorce revocation law at the plan level, thereby permitting the ex-spouse to receive the designated benefit from the plan, but allowing the person(s) entitled under the divorce revocation statute to recover those proceeds from the ex-spouse in a subsequent state-court action based on unjust enrichment. In a 2013 decision, Hillman v. Maretta, involving an insurance policy purchased under a program for federal employees, the Supreme Court extended preemption to forbid such post-distribution relief.

In this essay, I point to serious shortcomings in the reasoning and policy merits of Egelhoff and Hillman. There is no federal policy favoring wealth transfer to ex-spouses. The divorce revocation statutes exemplify the core policy value of state wealth transfer law, which is to implement transferor’s intent, a policy distinct from and congruent with the purposes of the federal statutes on which the Court based preemption in Egelhoff and Hillman. Unless Congress intervenes or the Court permits the development of a federal common law of divorce revocation, Egelhoff and Hillman will saddle American wealth transfer law with needlessly contradictory rules, sometimes applicable to different transfers by the same transferor.

Suggested Citation

Langbein, John H., Destructive Federal Preemption of State Wealth Transfer Law in Beneficiary Designation Cases: Hillman Doubles Down on Egelhoff (October 1, 2013). Yale Law School, Public Law Research Paper No. 312; Yale Law & Economics Research Paper No. 484. Available at SSRN: https://ssrn.com/abstract=2330817 or http://dx.doi.org/10.2139/ssrn.2330817

John H. Langbein (Contact Author)

Yale University - Law School ( email )

P.O. Box 208215
New Haven, CT 06520-8215
United States
(203) 432-7299 (Phone)

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