In 1951 Florida enacted a statute automatically cutting divorced spouses out of each other’s wills (currently at F.S. 732.507(2)). In 1989 Florida enacted a similar statute for revocable trusts (currently at F.S. 736.1105). These statutes were all we needed when most people relied on a will or revocable trust to provide for their heirs.
Times have changed. Today, life insurance and other beneficiary-designated non-probate assets such as annuities, pay-on-death accounts, and retirement planning accounts have become the dominant wealth transfer mechanism for most middle class families (wills and trusts remain dominant for the wealthy). As reported by Tampa attorney Suzanne Glickman in A Fair Presumption: Why Florida Needs a Divorce Revocation Statute for Beneficiary-Designated Nonprobate Assets:
Life insurance and other nonprobate assets such as annuities, pay-on-death accounts, and retirement planning accounts have become increasingly popular as estate planning tools. In 2004, Americans purchased $3.1 trillion in new life insurance coverage, a ten percent increase from just ten years before. Purchases made by Floridians accounted for nearly $154 million of this national total. At the end of 2004, there was $17.5 trillion in life insurance policy coverage in the United States.
Against this backdrop, it was inconsistent and illogical to have automatic post-divorce revocation statutes for wills and revocable trusts, but not for beneficiary-designated non-probate assets. As I reported here, attempts to fill this gap in the courts failed. The problem needed a legislative fix. Now we have one.
As reported in this Florida Senate Legislative White Paper, effective July 1, 2012 new F.S. 732.703 came into effect, accomplishing the following:
[F.S. 732.703] generally nullifies upon divorce or annulment the designation of a spouse as a beneficiary of nonprobate assets such as life insurance policies, individual retirement accounts, and payable on death accounts. State-administered retirement plans are exempt from [F.S. 732.703]. If the provisions of [F.S. 732.703] apply, an asset will pass as if the former spouse predeceased the decedent.
[F.S. 732.703] also specifies criteria for a payor of a nonprobate asset to use in identifying the appropriate beneficiary. [F.S. 732.703] specifically provides that the payor is not liable in some circumstances for transferring an asset to the beneficiary identified through the bill’s criteria.
[F.S. 732.703] voids the designation of a former spouse as a beneficiary of an interest in an asset that will be transferred or paid upon the death of the decedent if:  The decedent’s marriage was judicially dissolved or declared invalid before the decedent’s death; and  The designation was made before the dissolution or order invalidating the marriage.
Click here for a link to the Florida Senate’s webpage for this new legislation and links to the actual text of the bill.
F.S. 732.703 is not all encompassing, it only applies to the following beneficiary-designated non-probate assets:
- a life insurance policy, qualified annuity, or other similar tax-deferred contract held within an employee benefit plan;
- an employee benefit plan;
- an individual retirement account;
- a payable-on-death account;
- a security or other account registered in a transfer-on-death form; and
- a life insurance policy, annuity or other similar contract that is not held within an employee benefit plan or tax-qualified retirement account.
F.S. 732.703 does NOT apply:
- to the extent federal law provides otherwise;
- if the governing instrument as defined in the bill expressly provides that the interest will be payable to the designated former spouse after the order of dissolution or order declaring the marriage invalid and the instrument expressly provides that benefits will be payable to the decedent’s former spouse;
- to the extent the disposition of the assets are governed by a will or trust;
- if a court order required the decedent to acquire or maintain the asset for the benefit of the former spouse or children of the marriage;
- if under terms of the order of dissolution or order declaring the marriage invalid, the decedent did not have the ability to unilaterally terminate or change the beneficiary or pay-on-death designation;
- if the designation of the decedent’s former spouse as beneficiary is irrevocable under applicable law;
- if the contract or agreement is governed by the laws of another state;
- to an asset held in two or more names as to which the death of one co-owner vests ownership of the asset in the surviving co-owner or co-owners [i.e., joint accounts]; or
- if the decedent remarries the person whose interest would otherwise have been revoked as a former spouse under the bill and the decedent and that person are married to one another at the time of the decedent’s death.
Trap for the unwary #1: joint survivor accounts:
The F.S. 732.703 exception probate lawyers will want to focus on is for joint survivor accounts. Here’s what Jeff Baskies, one of Florida’s preeminent estate planning gurus, had to say about this issue:
Obviously, the most important and potentially controversial exception relates to joint accounts. A decision was made not to address those accounts in this context. While I believe Florida law currently provides that tenancy by the entireties accounts (which might otherwise be covered by [the joint-account exception] above) are converted to tenancies in common upon a divorce, I do not believe there is a similar rule for joint accounts with rights of survivorship. If this issue creates ongoing problems or a trap for the unwary, perhaps subsequent “clean-up” legislation will address joint accounts.
[Click here for Jeff’s entire commentary on the new statute].
Trap for the unwary #2: catch me if you can:
The second big point probate lawyers will want to keep in mind is enforcement. F.S. 732.703 is specifically designed to keep banks and insurance companies out of the line of fire if a family dispute erupts over any beneficiary-designated non-probate asset covered by the statute. If an ex-spouse swoops in and improperly cashes a life-insurance check before anyone is the wiser, you won’t be able to sue the insurance company, you’ll have to chase down the ex-spouse and sue him or her directly to get the money back.
Here’s how the statute’s “payor” immunity is described in this Florida Senate Legislative White Paper:
[F.S. 732.703] provides that in the case of pay-on-death accounts, securities or other accounts registered in transfer-on-death form, and life insurance policies, annuities or other similar contracts not held within an employee benefit plan or a tax-qualified retirement account, the payor is not liable for making any payment on account of, or transferring any interest in, such assets to any beneficiary.
A payor’s immunity for making a payment in accordance with the criteria in [F.S. 732.703] applies notwithstanding the payor’s knowledge that the person to whom the asset is transferred is different from the person who would own the interest due to the dissolution of the decedent’s marriage or declaration of the marriage’s validity before the decedent’s death. As such, a secondary beneficiary will have a cause of action against the former spouse who receives the payment or transfer of the assets described in [F.S. 732.703] if the beneficiary designations was made void upon divorce or annulment.
Trap for the unwary #3: ERISA trumps FL’s revocation statute:
And finally, the last trap to keep in mind: a beneficiary designation in a pension plan or life insurance policy subject to federal regulation under the Employee Retirement Income Security Act (ERISA), is NOT subject to Florida’s new automatic revocation statute. For an in depth explanation — and critique — of the current state of the law on this point you’ll want to read Destructive Federal Preemption of State Wealth Transfer Law in Beneficiary Designation Cases: Hillman Doubles Down on Egelhoff, by Yale law Prof. John H. Langbein. Here’s an excerpt:
In Egelhoff v. Egelhoff, 532 U.S. 141 (2001), the Supreme Court held that when the instrument of transfer is a beneficiary designation in a pension plan or life insurance policy subject to federal regulation under the Employee Retirement Income Security Act (ERISA), the otherwise applicable state divorce revocation statute is preempted, even though ERISA makes no mention of divorce revocation. The Court reasoned that enforcing the state divorce revocation statute would “interfere with nationally uniform plan administration.”
Because the result in Egelhoff allowed supposed plan-level administrative convenience to defeat the principled objective of the divorce revocation statutes, a number of courts reacted by allowing so-called post-distribution relief, in some cases pursuant to a state statute so providing. Obeying Egelhoff, these courts preempted the state divorce revocation law at the plan level, thereby permitting the ex-spouse to receive the designated benefit from the plan, but allowing the person(s) entitled under the divorce revocation statute to recover those proceeds from the ex-spouse in a subsequent state-court action based on unjust enrichment. In a 2013 decision, Hillman v. Maretta, involving an insurance policy purchased under a program for federal employees, the Supreme Court extended preemption to forbid such post-distribution relief.