Florida Banking December 2022/January 2023

TRUST BANKING

THE SEASON OF GIVING… TO YOUR EX-SPOUSE?

BY KELLY O’KEEFE, SHAREHOLDER, STEARNS WEAVER MILLER

T he holiday season and the spirit of giving that comes with it are here. But are you giving to those whom you intended? This is a good time to check your beneficiary designations, especially if you are divorced. Otherwise, you might be giving your ex-spouse an unintended holiday gift. Year-end is also a good time for those responsible for paying out a decedent’s interest in a non-probate asset to reacquaint themselves with what to do when an ex-spouse is the designated beneficiary. Florida’s post-divorce “automatic” revocation statute, section 732.703, Florida Statutes (the “Revocation Statute”), renders void upon divorce a decedent’s beneficiary designation of an ex-spouse for non-probate assets, such as life insurance policies, individual retirement accounts and payable on death accounts. But that revocation is not always automatic — there are plenty of exceptions in the Revocation Statute. There are certain non-probate assets that are excluded from it altogether. There are also certain circumstances where the right boxes must be checked to assure that the Revocation Statute, and the protections it affords, apply. This article examines some of those exceptions — some you may be familiar with, but some may surprise you. If you fail to recognize these exceptions, you could find yourself at the center of a beneficiary designation lawsuit. The ERISA Exception to the Revocation Statute One of the exceptions to the Revocation Statute arises from a tale as old as time. While happily married, Spouse A designates Spouse B as the beneficiary of Spouse A’s retirement account. After some time, the two divorce, but Spouse A fails to update the beneficiary designation. Then, Spouse A dies with Spouse B still listed as the beneficiary. Is Spouse B entitled to those distributions? What are the plan administrator’s responsibilities? Does the plan fiduciary have a responsibility to wade through state law and marriage settlement agreements to determine if Spouse B, the listed beneficiary, is entitled to those retirement distributions?

If the plan is covered by the federal Employee Retirement Security Act (“ERISA”), Florida’s Revocation Statute does not apply. ERISA compels a fiduciary to administer the plan “in accordance with the documents and instruments governing the plan,” including making payments to a “beneficiary” who is “designated by a participant, or by the terms of [the] plan.” In keeping with ERISA’s general state-law preemption scheme, the U.S. Supreme Court held that ERISA’s directives regarding payments preempt the application of state law, like Florida’s Revocation Statute, that automatically revokes upon divorce the designation of a spouse as a beneficiary of an ERISA governed plan. Egelhoff v. Egelhoff ex rel. Breiner, 532 U.S. 141, 147-48 (2001). Consequently, where Spouse A never updated the beneficiary designation, the plan administrator must make distributions to Spouse B, regardless of the divorce or possible agreement among all parties involved to override the beneficiary designation. But, the story does not end there for those who would otherwise be entitled to a distribution that the ERISA-governed plan was forced to make to the ex-spouse. They can pursue a state claim against the ex-spouse to recover the funds. For example, where there is a divorce decree in which the ex-spouse waived entitlement to the ERISA controlled plan, courts have typically looked to state contract law and concluded that ERISA does not invalidate the waiver. In Martinez-Olson v. Estate of Olson, 328 So. 3d 14 (Fla. 3d DCA 2021), the former spouse waived any interest in the decedent’s 401(k) plan under the marriage settlement agreement. The court recognized suits to recover proceeds after they are distributed by the ERISA plan administrator are permissible, and held that the decedent’s estate could enforce the waiver in the marital settlement agreement against the ex-spouse. That is because ERISA no longer is implicated once the benefits are distributed to the designated beneficiary. Other Exceptions to the Revocation Statute Federal preemption is only one of the many exceptions to the Revocation Statute listed in section

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