Jessica Christophillis, J.
During marital litigation, assets with a named beneficiary, such as retirement accounts, brokerage accounts and certain life insurance policies, can be the largest assets subject to equitable apportionment. The timing of a spouse’s death during marital litigation can have a profound impact on how these assets and the beneficiary interests of these assets are handled. Thus, parties must contemplate the death of either spouse as it relates to the division of the parties’ assets during each stage of any marital litigation action.
In South Carolina, parties have four fault-based grounds for divorce and one no-fault ground based on separation without cohabitation for one year.1 If parties do not have a fault-based ground to obtain a divorce, they can either wait until the year of separation is over and file for a divorce, or they may file an action for separate support and maintenance once they separate into different residences.2 The decision on whether to begin marital litigation by fling for separate support and maintenance upon separation or waiting the required year to file for divorce can have a substantial impact on what constitutes marital property and thus what will be equitably apportioned by the family court.
What constitutes marital property?
Our family court has jurisdiction to divide “the real and personal property of the marriage.”3 Pursuant to S.C. Code Ann. §20-3-630, marital property is defined as all real and personal property that has been acquired during Husband and Wife’s marriage and owned on the date of fling or commencement of marital litigation (with certain exceptions such as property acquired by gift, inheritance or before marriage).4
Although the definition of marital property includes property acquired during the marriage, marital property is the property owned only as of the date of fling the marital litigation.5 In general, the family court does not look at every asset that has been bought and sold, or every dollar spent, during the history of the marriage but is instead concerned with the assets and funds in existence on the date of the fling of marital litigation.
Assets with beneficiary interests
Often, marital property includes assets that name a beneficiary in the event of the policy holder’s or owner’s death. Common examples of these assets include life insurance policies, brokerage accounts, individual retirement accounts (IRAs) and retirement accounts governed by the Employee Retirement Income Security Act of 1974 (ERISA), such as employer-provided 401(k) plans and pensions. These assets create an expectancy interest to a beneficiary, because while the owner is alive, the beneficiary has no vested rights in the asset.7
An attorney retained to represent Husband or Wife in a potential or pending marital litigation action should determine how the bulk of the parties’ assets are held, and how to best protect the client and the marital property through the pendency of marital litigation. Advocating for a client’s most favorable equitable distribution position must contemplate not only each stage of the marital litigation process while the parties are living, but also what happens if one party unexpectedly passes away during the process.
What happens if there is no pending marital litigation?
This scenario is most likely to occur when Husband and Wife have decided to separate into different residences and wish to wait the one year of continued separation before fling for divorce. As stated above, only the commencement of marital litigation creates marital property. Therefore, if a Husband, for example, passes away and an account/policy is owned solely in his name, it is his policy and the Wife has only an expectancy interest if she is the beneficiary.
If a party dies before marital litigation is commenced, the party’s probate assets will pass pursuant to the South Carolina Probate Code.8 Any non-probate assets, such as life insurance, brokerage accounts and retirement accounts with named beneficiaries, will pass in accordance with the account owner’s beneficiary designation. This could have unintended consequences to a spouse who is contemplating fling marital litigation in the future but has not yet done so.
During separation but before commencement of an action, Husband and Wife may want to review their policies and accounts and make any appropriate changes to t heir beneficiaries if they are able. A person’s ability to change his or her beneficiaries is governed by the applicable law related to the asset. For example, most employer defined benefit plans (typically pension accounts received from private businesses) and defined contribution plans (typically 401(k) plans received from private businesses) are subject to ERISA. Under ERISA, the only way a party may change a beneficiary on an ERISA plan is by spousal waiver, which requires the consent of the spouse.9
Life insurance policies are contracts between the insured party and the insurance company, and any terms are to be construed in accordance with contract law.10 Thus, as long as the insurance policy allows, an insured party may change his or her beneficiary at any time without spousal approval or knowledge. Likewise, IRAs, brokerage accounts and solely owned bank accounts are all contracts between the account holder and the issuing company, and have no requirement that a spouse consent to the change of any beneficiary designations.
If a party does not change his or her beneficiary and maintains the estranged spouse as the beneficiary of these assets during separation, the estranged spouse will still inherit the spouse’s designated beneficiary portion if the owner spouse passes away. Conversely, if a spouse decides to name another person as beneficiary on an account, then the estranged spouse would not receive any proceeds from the distribution of the policy/ account upon the owner’s passing.
Commencing marital litigation
If an attorney represents a Husband or Wife whose spouse holds the bulk of marital property in an account where the spouse has complete control to change the beneficiary at any time, or complete control of the asset’s liquidity, marital litigation may need to be fled to protect your client’s interest. Once a party files for marital litigation, the spouse that had only an expectancy interest in the account as their spouse’s beneficiary now has a...