ERISA – What You Need To Know

What You Need To Know About ERISA

(This is the fourth in a series regarding probate procedures in Texas.)

It took four courts and several years but, by gosh, justice was done in the case of Hennig v. Didyk.

This story is about divorce, death and money. Matt and Wendy married and then divorced. In the divorce decree, Matt was awarded his employment benefits, including his life insurance. After the divorce, Matt logged onto the employer’s benefits system and tried, but failed, to delete Wendy as the beneficiary of his life insurance.

Years later Matt died. He was survived by his parents, who claimed his estate as heirs. However, Matt’s $377,000 life insurance policy was not part of his estate because – you guessed it – ex-wife Wendy was still the named beneficiary.

Both Wendy and Matt’s parents filed a claim with the insurance company for the proceeds.

Enter court No. 1. Matt’s parents filed a case in the probate court so they could be formally recognized as Matt’s heirs. The probate court found they were heirs and then named Matt’s dad as the independent administrator of Matt’s estate.

What Is ERISA?

Enter court No. 2. The insurance company, caught in the middle by competing claims, filed a suit in federal court. Why federal court? Because the Employee Retirement Income Security Act (ERISA) is the federal law that controls employer benefits, including employer-provided life insurance. Federal courts have jurisdiction over cases involving a federal law.

The federal court, properly, ruled that ERISA controlled over state law and that the insurance proceeds should be paid to Wendy because she was named on the beneficiary form. So, Wendy was awarded the insurance proceeds which was placed in a trust pending additional litigation.

But wait – that wasn’t fair, was it? By signing off on the agreed decree, Wendy had agreed to give up her rights to Matt’s insurance benefits. So why should she get the money?

Estate Ownership and State Laws

Matt’s parents were determined to find a legal way to right this legal wrong. They noted that while the federal court had ruled that Wendy was entitled to payment of the proceeds, it had declined to decide who was entitled to ownership of the proceeds after they had been paid to Wendy. Ownership, you see, was a question of state law.

It was onward to the original divorce court, court No. 3. Matt’s dad, as estate administrator, filed the suit because he had standing to present Matt’s claims in the divorce. Matt’s dad argued that, while Wendy had a right under federal law to receive the money, she did not have a right under state law to keep it. He pointed out that Wendy had contracted away her rights to Matt’s life insurance in the decree.

The district court agreed and found that Matt’s estate owned the insurance proceeds. Wendy had to turn the money over to the estate.

Enter court No. 4. Wendy petitioned the state appellate court to overturn the award. She lost again.

Having Clear Language In A Divorce Decree Helps

There were two difference-makers in this case. The agreed divorce decree contained clear language regarding the life insurance policy. Had it been poorly drawn, the result may have been different. And Matt’s dad took the right procedural steps – heirship, then probate administration, then a divorce enforcement case.

One more step that could be helpful in the next case: a restraining order so that the ex could not squander the money between receipt and judgment.

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Virginia Hammerle is an attorney with Hammerle Finley Law Firm whose practice includes probate law, estate planning and contested litigation. To receive her newsletter, email legaltalktexas@hammerle.com. This column is for general information only and does not constitute legal advice.