When Federal Law and State Law Collide in Divorces

Husband (H) was an active duty serviceman. He took out a life insurance policy naming his wife (W) as beneficiary. The policy was issued by the Servicemen's Group Life Insurance Act of 1965 (SGLIA).

Later, H and W filed for divorce in California. While they were working through their divorce settlement, they stipulated (agreed) that H would retain W on his Servicemen’s Group Life Insurance Policy. Six months later, he changed the beneficiary to his sister (S). The amount of the policy was $400,000.00.

Sadly, H was terminally ill and in fact died. S learning that she was the beneficiary on H’s life insurance policy, submitted a claim for and received the policy’s benefits.

W learned of S’s receipt of the life insurance funds, and filed a petition to have the money returned to her because she and H had agreed that she would be the beneficiary.

The court denied W’s request and allowed S to retain the funds, stating that federal law applied. The federal law allowed a serviceperson to change the beneficiary on his/her life insurance policy at any time for any reason – even if it was against state law.

W appealed arguing H and W’s agreement, and that H and S had committed a fraud against W.

The Appellate Court agreed with the trial court:

“Applying federal law here, we are compelled to conclude Husband possessed the right under the SGLIA "freely to designate the beneficiary and to alter that choice at any time by communicating the decision in writing to the proper office…[I]t appropriately may be said: Congress has spoken with force and clarity in directing that the proceeds belong to the named beneficiary and no other…”

Further, the Appellate Court concluded, since S did not know of the beneficiary change when it was made there could be no fraud against her. Also, since Congress had provided H with the absolute right to change his beneficiary at any time, it would not have mattered how S became the beneficiary.

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