§ 12.02 Types of Benefits
| Jurisdiction | United States |
| Publication year | 2021 |
§ 12.02 Types of Benefits
[1]—Military Life Insurance
The Supreme Court case Wissner v. Wissner11 involved a military life insurance policy. Premiums were paid via deductions from the spouse's army pay. The spouse designated his mother as beneficiary; in California, the state of marital domicile, the appointment of beneficiary was ineffective as to the wife's one-half community property interest in the policy. Upon the husband's death, the widow sued the beneficiary for the widow's one-half interest in the policy.
The applicable federal statute provided that the serviceman "shall have the right to designate the beneficiary." A majority of the Supreme Court concluded that this statutory language reflected a clear intent to preempt state law.12 If the widow would be treated as one-half owner, despite the husband's beneficiary designation of his mother, this would frustrate the perceived Congressional purpose. The Court also noted the "spendthrift clause" in the applicable federal statute which exempts the policy proceeds from creditor attachment. This provision reinforced the Court's belief that Congress intended no other party to be able to obtain an interest in the proceeds.13
Supreme Court case Ridgway v. Ridgway14 also involved a military life insurance policy. Mr. Ridgway and his first wife divorced in 1977. The Maine court ordered him to maintain his military policy for the benefit of his children. When Mr. Ridgway remarried, he designated his second wife beneficiary. Upon his death, Mr. Ridgway's children sued to impose a constructive trust on the policy proceeds.
The federal statute governing Mr. Ridgway's life insurance was quite similar to the one governing Mr. Wissner's policy. The Supreme Court determined that the situation presented in Ridgway was governed by the Wissner rule. The federal statute involved in Ridgway stated that the serviceman had the right to designate the beneficiary, as well as the right to change the designation. Any state law interfering with this congressional purpose must be preempted.15 The Ridgway Court found additional support for its preemption finding in the spendthrift clause contained in the relevant federal statute.
After Wissner and Ridgway, it seems clear that state divorce courts cannot award the non-military spouse an interest in military life insurance policies. In addition, the state court cannot interfere with the military spouse's right to designate the beneficiary.16 However, some courts have distinguished a court order from a waiver contained in a separation agreement signed by the service member. In the latter instance, if the member contractually waives his right to designate a new beneficiary, it has been considered enforceable.17
In a Minnesota case, the spouses' son had been killed in Iraq before they filed for divorce. The mother was designated the beneficiary under the son's life insurance policy. These funds were treated as the mother's separate property. Under Minnesota law, separate property can be divided at divorce to prevent unfair hardship. When the divorce court divided the benefit for this reason, the Minnesota Supreme Court ruled this was barred by federal law.18
[2]—Savings Bonds
In another U.S. Supreme Court case, Free v. Bland,19 a Texas husband purchased savings bonds with community property. The husband and wife took title as joint tenants. Federal law established that the survivor became sole owner upon the death of the other joint tenant. In contrast, under Texas law community property could not be changed into joint tenancy property, and the wife would thereby retain her 50% community property interest in the bond after the joint tenancy designation.
The wife died, leaving her estate to her son. The son claimed he inherited a one-half interest in the bonds. The Supreme Court found that the federal rules regarding the effect of a joint tenancy designation were in conflict with the Texas rules, and that enforcing Texas law would undermine the government's ability to raise money. Because of these factors, Texas law was preempted, and the joint tenancy designation was considered effective.
The preemption decision in this context is not the most critical issue. The vital concern is whether the spouses' property rights would be significantly affected by the preemption decision. The Supreme Court suggested in Yiatchos v. Yiatchos20 that the spouses' property rights will not be significantly affected.
Yiatchos also involved a savings bond purchased with community property funds. The husband took title with his brother as joint tenants. Upon the husband's death, the widow claimed an interest in the bond. In this case, the Supreme Court held that the preemption decision would not affect the widow's rights. She should either receive a one-half interest in the bond or an offsetting award of equal value from the husband's estate.
The Yiatchos holding was based upon the community property principle that the wife had a 50% interest in the community property when it was acquired. Under Washington law, the husband could not give away community property during marriage without the wife's consent.
It is unclear whether Yiatchos has any effect in common law states, where the non-acquiring spouse has no vested interest in marital property until a divorce action is filed.21 It is also unclear whether a divorce court can affect title or the beneficiary designation of savings bonds.22
[3]—Social Security
[a]—Preemption
After the decisions of the Supreme Court in Hisquierdo v. Hisquierdo23 and McCarty v. McCarty,24 most courts have determined that federal Social Security longevity benefits to be received in the future cannot be divided at divorce.25 A number of courts have ruled that a court may not award an offsetting amount of marital property to the spouse who does not have Social Security benefits to compensate the spouse for the value of the other spouse's benefits.26 In addition, courts have ruled that amounts saved during marriage from Social Security benefits cannot be divided at divorce.27 In contrast, a Tennessee court affirmed the division of Social Security benefits at divorce; the preemption issue was not mentioned.28 A South Carolina court held that a party's agreement to divide Social Security was not enforceable.29 (Most courts agree that courts may consider the benefits as one of many factors when dividing the marital estate,30
but some disagree.31 ) The conclusion that the benefits may not be divided has been based upon the specific provisions in the statute regarding benefits for non-employee spouses (among other things).32 In addition, the Social Security Act contains a spendthrift clause.33 Many decisions before 1979 held that Social Security benefits could be divided at divorce.34 However, the preemption issue was not addressed in these earlier cases.
An Arizona court approved the award of spousal maintenance in an amount equal to 50% of what the obligor received in Social Security benefits.35
A Missouri court divided property purchased with Social Security disability payments received during marriage.36 In contrast, a Louisiana court decided that federal preemption barred the application of Louisiana's community property law to Social Security disability benefits received both during marriage and after divorce.37 An Indiana court has ruled that Social Security disability benefits were not divisible property at divorce.38 A North Carolina court concluded that Social Security disability benefits to be received after divorce were the recipient's separate property.39 Of course, even if a court would hold that division of Social Security disability benefits is not prohibited by federal law, it would have to determine whether such benefits are divisible under the state's divorce law.40 An Indiana court held that Social Security disability benefits to be received after divorce were not divisible because they were meant to replace the spouse's post-divorce lost earnings.41 Agreements by spouses to divide post-divorce Social Security benefits have been held invalid by a number of courts.42 A Mississippi court has enforced a marital settlement agreement providing that the husband would pay half his Social Security benefits after divorce to his former wife.43 An Iowa court has ruled that a lump-sum Social Security benefit received during marriage by a child due to her father's disability was not marital property.44
Some courts have concluded that this rule that Social Security benefits may not be divided at divorce can be unfair to a working spouse who does not participate in the Social Security program. (Many employees of state, local, or federal governments do not participatein the Social Security program.) This is particularly true if the other spouse has participated in the Social Security program during marriage. Some courts have concluded that in such instances the value of the spouse's Social Security benefits should be deducted from the value of the other spouse's pension rights to calculate the pension amount that is divisible.45 Other courts do not accept this view.46 Other courts that are receptive to this argument have concluded that one spouse's rights to Social Security is a factor that should be considered when dividing the marital estate.47 Most courts have concluded that a pension benefit received as a substitute for Social Security benefits is divisible at divorce.48
Courts that have been inclined to make an equitable adjustment for Social Security benefits have done so in various ways. For example, in an Iowa case the husband worked for the post office and did not earn Social Security benefits, whereas the wife did earn such benefits at her job. The trial court awarded the wife half of the marital portion of the husband's pension. On appeal, the husband successfully argued that the wife's share of his benefits should be reduced to 25% in light of the wife's Social Security benefits.49 In a Washington case, the husband...
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