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Military Law Newsletter - Spring 2014

Military Law News

Servicemen's Group Life Insurance in Divorce Cases

By Peter Jankell 1

The United States Supreme Court does not hear divorce cases often.  So, when the High Court does issue a decision in a domestic relations case, family law practitioners should take the opportunity to evaluate the effect on their practice.  Hillman v. Maretta, 569 U.S. ___, 132 S. Ct. 2566 (2013), provides the perfect vehicle for military family law practitioners to review how to treat Servicemen’s Group Life Insurance (SGLI) in divorce cases.

In the Hillman case, Warren Hillman and Judy Maretta were married and Mr. Hillman named Ms. Maretta as the beneficiary of his Federal Employees' Group Life Insurance (FEGLI) policy. Mr. Hillman and Ms. Maretta divorced and, four years later, Mr. Hillman married Jacqueline Hillman. Mr. Hillman never changed the named beneficiary under his FEGLI policy, and it continued to identify Ms. Maretta as the beneficiary at the time of his death.  Mr. Hillman never changed the beneficiary despite his divorce and subsequent remarriage to Ms. Hillman.

Ms. Hillman filed a claim for the proceeds of Mr. Hillman's life insurance, but the FEGLI administrator informed her that the proceeds would accrue to Ms. Maretta because she had been named as the beneficiary. Ms. Maretta filed a claim for the benefits and collected the FEGLI proceeds in the amount of $124,558.03.

Ms. Hillman then filed a lawsuit arguing that Ms. Maretta was liable to her under §20-111.1(D) of the Code of Virginia for the proceeds of her deceased husband's FEGLI policy.  The Supreme Court held that FEGLI is governed by the Federal Employees' Group Life Insurance Act of 1954 (FEGLIA), 5 U. S. C. §8701 et seq.  FEGLIA provides that an employee may designate a beneficiary to receive the proceeds of his life insurance at the time of his death. This preempts a Virginia statute which addresses the situation in which an employee's marital status changed, but the employee did not update his beneficiary designation before his death.  The Court noted that FEGLIA is substantially similar to the Servicemen's Group Life Insurance Act of 1965 (SGLIA), 38 USC §1965 et seq.  Accordingly, SGLIA would also preempt § 20-111.1.

Section 20-111.1(D) of the Virginia Code renders a former spouse liable for insurance proceeds to whomever would have received them under applicable law, usually a widow or widower, but for the beneficiary designation.  § 20-111.1. provides:

A. Except as otherwise provided under federal law or law of this Commonwealth, upon the entry of a decree of annulment or divorce from the bond of matrimony on and after July 1, 1993, any revocable beneficiary designation contained in a then existing written contract owned by one party that provides for the payment of any death benefit to the other party is revoked. A death benefit prevented from passing to a former spouse by this section shall be paid as if the former spouse had predeceased the decedent. The payor of any death benefit shall be discharged from all liability upon payment in accordance with the terms of the contract providing for the death benefit, unless the payor receives written notice of a revocation under this section prior to payment.

B. The term "death benefit" includes any payments under a life insurance contract, annuity, retirement arrangement, compensation agreement or other contract designating a beneficiary of any right, property or money in the form of a death benefit.

C. This section shall not apply (i) to the extent a decree of annulment or divorce from the bond of matrimony, or a written agreement of the parties provides for a contrary result as to specific death benefits, or (ii) to any trust or any death benefit payable to or under any trust.

D. If this section is preempted by federal law with respect to the payment of any death benefit, a former spouse who, not for value, receives the payment of any death benefit that the former spouse is not entitled to under this section is personally liable for the amount of the payment to the person who would have been entitled to it were this section not preempted.

The Hillman case did not involve a divorce decree or written agreement of the parties which provided for specific death benefits.  The decision, however, leaves open the question as to what happens if SGLI benefits were intended to go to a former spouse in a divorce.

Absent a separation agreement, a Circuit Court cannot order a party to a divorce to provide life insurance unless specifically authorized by statute.   "Nothing in the divorce statutes" empowers circuit courts to compel a spouse "to contract for life insurance" with the former spouse as the beneficiary. Lapidus v. Lapidus, 226 Va. 575, 579; 311 S.E.2d 786, 788 (1984). Simply put, "a trial court cannot order that a person obtain life insurance on himself for the benefit of a former spouse." Lewis v. Lewis, 53 Va. App. 528, 542, 673S.E.2d 888, 895 (2009).

If, absent a separation agreement, a Court cannot order a party to obtain or maintain life insurance, what happens when the parties have a separation agreement which so provides?  In Lewis v. Lewis, 53 Va. App. 528, 542, 673 S.E.2d 888, 895 (2009), the Court held that "under Code § 20-107.3(G)(2), a trial court cannot order that a person obtain life insurance on himself for the benefit of a former spouse." However, courts can enforce a written agreement between former spouses that one will obtain life insurance for the benefit of the other. See Sullivan v. Sullivan, 33 Va. App. 743, 750, 536 S.E.2d 925, 929 (2000).   Sullivan upheld a trial court's order that the husband maintain a life insurance policy during his life based on a written agreement between the husband and the wife in which the husband agreed to do so. 

The important lesson from Hillman is that SGLI is going to pay proceeds in accordance with Federal Law, which means payment will be to the named beneficiary.  A former spouse who has a separation agreement or divorce decree which requires maintenance of SGLI probably has no remedy after the death of their ex.  Enforcement would have to be by a Rule to Show Cause during the life of their former spouse to ensure compliance with the Court Order.  Enforcement through a Show Cause can be quite cumbersome.

This raises the interesting question of how to enforce an order requiring a service member to maintain SGLI under Va. Code § 20-108.1(D).  That section provides:

D.      In any proceeding under this title, Title 16.1, or Title 63.2 on the issue of determining child support, the court shall have the authority to order a party to (i) maintain any existing life insurance policy on the life of either party provided the party so ordered has the right to designate a beneficiary and (ii) designate a child or children of the parties as the beneficiary of all or a portion of such life insurance for so long as the party so ordered has a statutory obligation to pay child support for the child or children.

Arguably, § 20-108.1(D) is also preempted by Federal Law under the Hillman rationale.  Accordingly, enforcement would have to be by a Rule to Show Cause during the life of the service member to ensure compliance with the Court Order.

A distinction must also be drawn between SGLI and the Survivor Benefits Plan (SBP) for military retirement.   SBP is governed by the Uniformed Services Former Spouse Protection Act (USFSPA), 10 U.S.C. §1408, and Virginia Code § 20-107.3(G)(2).   § 20-107.3(G)(2) provides:

To the extent permitted by federal or other applicable law, the court may order a party to designate a spouse or former spouse as irrevocable beneficiary during the lifetime of the beneficiary of all or a portion of any survivor benefit or annuity plan of whatsoever nature, but not to include a life insurance policy. The court, in its discretion, shall determine as between the parties, who shall bear the costs of maintaining such plan. (Emphasis added)

Ordering a former spouse to elect or maintain SBP is specifically prescribed under both Federal and Virginia Law.

Including SGLI in any final decree of divorce or in any separation agreement can be problematic.  There will be times when it is appropriate to do so.  The Supreme Court’s decision in Hillman v. Maretta, 569 U.S. ___, 132 S. Ct. 2566 (2013), serves as a warning of the potential pitfalls.  Any said divorce decree or agreement must contain a method to review and enforce the life insurance election during the life of party who is required to provide insurance.  Enforcement after death is going to be governed by Federal Law which has no provision for enforcement.

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1Mr. Jankell is a Partner at the Chesapeake law firm of Jankell & Ireland, P.C. and a retired Navy Reserve JAG Corps Commander.