The Contracts Clause

Modern Applications

Sveen v. Melin (2018)

584 U.S. ___ (2018)

Decision: Reversed
Vote: 8-1
Majority: Kagan, joined by Roberts, Kennedy, Thomas, Ginsburg, Breyer, Alito and Sotomayor
Dissent: Gorsuch

Justice Kagan delivered the opinion of the Court.

A Minnesota law provides that “the dissolution or annulment of a marriage revokes any revocable[ ] beneficiary designation[ ] made by an individual to the individual’s former spouse.” That statute establishes a default rule for use when Minnesotans divorce. If one spouse has made the other the beneficiary of a life insurance policy or similar asset, their divorce automatically revokes that designation—on the theory that the policyholder would want that result. But if he does not, the policyholder may rename the ex-spouse as beneficiary.

We consider here whether applying Minnesota’s automatic-revocation rule to a beneficiary designation made before the statute’s enactment violates the Contracts Clause of the Constitution …

In Minnesota, as across the nation, divorce courts have always had “broad discretion in dividing property upon dissolution of a marriage.” Maurer v. Maurer, (Minn. 2001) … In exercising that power, a court could revoke a beneficiary designation to a soon-to-be ex-spouse; or conversely, a court could mandate that the old designation remain … Either way, the court, rather than the insured, would decide whether the ex-spouse would stay the beneficiary.

In contrast to the old law, Minnesota’s new revocation-on-divorce statute starts from another baseline: the cancellation, rather than continuation, of a beneficiary designation. Enacted in 2002 to track the Code, the law provides that “the dissolution or annulment of a marriage revokes any revocable[ ] disposition, beneficiary designation, or appointment of property made by an individual to the individual’s former spouse in a governing instrument.” Minn. Stat. §524.2–804, subd. 1. The term “governing instrument” is defined to include an “insurance or annuity policy,” along with a will and other will substitutes. §524.1–201 …

In 1997, Sveen and Melin wed. The next year, Sveen purchased a life insurance policy. He named Melin as the primary beneficiary, while designating his two children from a prior marriage, Ashley and Antone Sveen, as the contingent beneficiaries. The Sveen-Melin marriage ended in 2007. The divorce decree made no mention of the insurance policy. And Sveen took no action, then or later, to revise his beneficiary designations. In 2011, he passed away.

In this action, petitioners the Sveen children and respondent Melin make competing claims to the insurance proceeds … Melin notes in reply that the Minnesota law did not yet exist when her former husband bought his insurance policy and named her as the primary beneficiary. And she argues that applying the later-enacted law to the policy would violate the Constitution’s Contracts Clause, which prohibits any state “Law impairing the Obligation of Contracts.” Art. I, §10, cl. 1.

The District Court rejected Melin’s argument and awarded the insurance money to the Sveens. But the Court of Appeals for the Eighth Circuit reversed. It held that a “revocation-upon-divorce statute like [Minnesota’s] violates the Contract Clause when applied retroactively.”

We granted certiorari … to resolve a split of authority over whether the Contracts Clause prevents a revocation-on-divorce law from applying to a pre-existing agreement’s beneficiary designation …

… the Minnesota statute furthers the policyholder’s intent in many cases—indeed, the drafters reasonably thought in the typical one … Although there are exceptions, most divorcees do not aspire to enrich their former partners. (And that is true even when an ex-spouse has custody of shared children, given the many ways to provide them with independent support.) The Minnesota statute (like the model code it tracked) applies that understanding to beneficiary designations in life insurance policies and other will substitutes …

The law puts in place a presumption about what an insured wants after divorcing. But if the presumption is wrong, the insured may overthrow it. And he may do so by the simple act of sending a change-of-beneficiary form to his insurer … The statute thus reduces to a paperwork requirement (and a fairly painless one, at that): File a form and the statutory default rule gives way to the original beneficiary designation.

In cases going back to the 1800s, this Court has held that laws imposing such minimal paperwork burdens do not violate the Contracts Clause. One set of decisions addresses so-called recording statutes, which extinguish contractual interests unless timely recorded at government offices. In Jackson v. Lamphire, (1830), for example, the Court rejected a Contracts Clause challenge to a New York law granting title in property to a later rather than earlier purchaser whenever the earlier had failed to record his deed. It made no difference, the Court held, whether the unrecorded deed was “dated before or after the passage” of the statute; in neither event did the law’s modest recording condition “impair[ ] the obligation of contracts.”

Likewise, in Vance v. Vance, (1883), the Court upheld a statute rendering unrecorded mortgages unenforceable against third parties—even when the mortgages predated the law …

And more recently, in Texaco, Inc. v. Short, (1982), the Court held that a statute terminating pre-existing mineral interests unless the owner filed a “statement of claim” in a county office did not “unconstitutionally impair” a contract …

[A]s we have shown, that law overrides a beneficiary designation only when the insured fails to send in a form to his insurer …

But we see no meaningful distinction among all these laws. The old statutes also “act[ed] on the contract” in a significant way. They added a paperwork obligation nowhere found in the original agreement—“record the deed,” say, or “notify the landowner.” And they informed a contracting party that unless he complied, he could not gain the benefits of his bargain. Or viewed conversely, the Minnesota statute also “impose[s] a consequence” for not satisfying a burden outside the contract. For as we have shown, that law overrides a beneficiary designation only when the insured fails to send in a form to his insurer. Of course, the statutes (both old and new) vary in their specific mechanisms. But they all make contract benefits contingent on some simple filing—or more positively spun, enable a party to safeguard those benefits by taking an action. And that feature is what the Court, again and again, has found dispositive.

First, not all the old statutes, as a formal matter, confined the consequence of noncompliance to the remedial sphere … And second, even when the consequence formally related to enforcement—for example, precluding an earlier purchaser from contesting a later one’s title—the laws in fact wiped out substantive rights. Failure to record or notify, as noted earlier, would mean that the contracting party lost what (according to his agreement) was his land or mortgage or mineral interest … Once again: Just like Minnesota’s statute, the laws discussed above hinged core contractual benefits on compliance with noncontractual paperwork burdens. When all is said and done, that likeness controls.

For those reasons, we reverse the judgment of the Court of Appeals and remand the case for further proceedings consistent with this opinion.

It is so ordered.


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