Sveen v. Melin

Retroactive application of state statute rescinding any revocable beneficiary designations in the event of divorce, does not violate the Constitution's Contracts Clause.

In the event of a divorce, Minn. Stat. § 524.2-804 subd. 1, enacted in 2002, effectively rescinds any revocable beneficiary designation made to a former spouse. Petitioner purchased a life insurance policy in 1998 naming his new wife, Respondent, as the primary beneficiary and his two children from a prior marriage as contingent beneficiaries. They divorced in 2007 and Petitioner made no effort to revise the policy. Respondent argues that applying the statute violates the Constitution’s Contracts Clause because the law did not exist when Petitioner purchased the policy. The District Court awarded the children the insurance money. The Eighth Circuit reversed, holding that retroactively applying the Minnesota law constituted a violation of the Contracts Clause. The Supreme Court held that the retroactive application of the Minnesota Statute does not violate the Contracts Clause using a two-step test for determining when a law violates the Contracts Clause. First, the court examines whether the statute substantially impairs an existing contractual relationship, and if so, the second prong requires evaluating whether it is appropriate and reasonable to effect a significant and legitimate purpose. The Court found that the law did not substantially impair the contractual scheme because it operates as a default rule which conforms to the presumed intent of the policyholder and it allows the policyholder to reverse the default effect with a simple change-of-beneficiary request. REVERSED and REMANDED.