Life Insurance and Marital Property
Goodwin v. Goodwin, 244 A.3d 453 (Pa. Super. 2020), allocatur granted Sept. 16, 2021, appeal docket 70 MAP 2021
In 1986, Johanna Dale gave birth to a son, Nicholas Campellone, but Nicholas’s biological father passed before Nicholas was born. In 1990, Johanna married Scott Goodwin—a first marriage for both—and took Scott’s last name. Nicholas lived with Johanna and Scott, though Scott never adopted Nicholas. On February 17, 2009, Johanna filed for divorce. She and Scott reconciled, but Johanna never withdrew the divorce complaint.
On January 1, 2017, Nicholas, a Pennsylvania attorney, died intestate at the age of 30—his mother his only heir. Nicholas’s IRA and life insurance policies each named Johanna as sole beneficiary. She received all of the corresponding proceeds, a total of $636,746.72. On March 27, 2017, Johanna and Scott separated. Johanna used a portion of the proceeds from Nicholas’s estate to buy a house, as Scott would remain in the marital home. On April 6, 2017, she filed a praecipe to reinstate her 2009 divorce complaint. Scott filed an answer and counterclaim seeking alimony.
The parties attended a master’s hearing on August 20, 2018. The master issued a report on August 31, 2018, after which Scott filed a motion for a hearing de novo with the Bucks County Court of Common Pleas. His motion was granted, and on July 22, 2019, the Family Division of the Bucks County Court of Common Pleas found, inter alia, that the life insurance and IRA proceeds paid to Johanna constituted property acquired by gift and, therefore, were not subject to equitable distribution. Scott filed a timely notice of appeal to the Superior Court, asserting, inter alia, that the proceeds from the life insurance policies and IRA constitute marital property.
The Superior Court disagreed with Scott, affirming the lower court’s decision. The Court held that the proceeds constituted gifts from Nicholas to Johanna, and that state statute excludes from marital property all “[p]roperty acquired by gift, except between spouses, bequest, devise or descent…”. 23 Pa.C.S. § 3501(a)(3). The Court explained that the life insurance and IRA proceeds vested in Johanna when Nicholas died, which was prior to the date of her separation from Scott. Her receipt of the proceeds, which occurred both before and after she separated from Scott, perfected the gifts. She kept the proceeds in her own, private bank account and used some of them to buy a house in her name, but not in Scott’s name.
In determining that the proceeds were a gift, the court recognized that the statutory exception to the definition of “marital property” at Section 3501(a)(3) is like the other statutory exceptions in Section 3501 in that all of the exceptions work to respect the intent of a donor to transfer property to only one of the spouses in a marriage. Furthermore, the types of property covered by the exceptions allow for the designation of co-beneficiaries and contingent beneficiaries, enabling the donor to be perfectly clear about his or her intent in such scenarios.
The Court also looked to the sparse Pennsylvania case law on the matter, noting that two cases touch on a similar scenario—where one spouse is the designated beneficiary of a life insurance policy carried by a third party that vests prior to the dissolution of the marriage. In each case, courts determined that such life insurances policies constituted marital property, but based upon circumstances not present in the Goodwins’ divorce. In Sutliff v. Sutliff, 361 Pa.Super. 504 (1987) (cleaned up), a Superior Court panel determined that life insurance proceeds constituted marital property because they were comingled in a joint account subsequently used for various family expenditures. The Superior Court reviewing Scott’s appeal interpreted Sutliff to imply that “had the proceeds of the life insurance policy and pension benefits not been commingled into the joint checking account, they would not have been considered marital property.” Slip op. at 10. In the second case, Rohrer v. Rohrer, 715 A.2d 463 (Pa. Super. 1998), a Superior Court panel found that a life insurance policy’s proceeds were marital property because marital funds were used to purchase and maintain the policy on behalf of the third party. No marital funds from the Goodwin marriage were ever used to purchase, maintain, or in any way fund Nicholas’s life insurance policies or IRA.
Finally, the Court looked to other states. It explained that its decision in this case was informed by and consistent with appellate holdings in similar cases in Florida, Idaho, Kentucky, Missouri, Colorado, Iowa, and Minnesota. The Court explained that:
“In each of these [non-Pennsylvania cases], the courts interpreted statutes either identical in language or closely tracking the language of Section 3501(a)(3), each concerned life insurance either by itself or in combination with other inherited property, some of which was testamentary, some of which was not, in some cases, the court could not determine the nature of the inheritance, and in all cases, the courts found the non-commingled property in question not to be marital property…We find these decisions and the reasoning underlying them to be extremely persuasive.
Slip op. at 13 (cleaned up).
Concurring and dissenting, Judge McCaffery looked to the text of Section 3501 of the Divorce Code:
For ease of review, I first set forth the Divorce Code’s definition of “marital property:
(a) General rule.—As used in this chapter, “marital property” means all property acquired by either party during the marriage . . . . However, marital property does not include:
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(3) Property acquired by gift, except between spouses, bequest, devise or descent or property acquired in exchange for such property.
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(b) Presumption.—All real or personal property acquired by either party during the marriage is presumed to be marital property regardless of whether title is held individually or by the parties in some form of co-ownership such as joint tenancy, tenancy in common or tenancy by the entirety. The presumption of marital property is overcome by a showing that the property was acquired by a method listed in subsection (a).
See 23 Pa.C.S. § 3501(a)(3), (b).
Concurring and Dissenting at 2. Judge McCaffery continued:
As Son died while the parties were married, his life insurance and IRA proceeds were presumed to be “marital property” pursuant to Section 3501(b), and to establish otherwise, Wife bore the burden of showing the proceeds were acquired by a method set forth in Subsection (a). See 23 Pa.C.S. § 3501(a), (b). As stated above, Section 3501(a) excludes the following from marital property: “[p]roperty acquired by gift, . . . bequest, devise or descent or property acquired in exchange for such property.” 23 Pa.C.S. § 3501(a)(3). However, as Husband points out, the Divorce Code does not define the terms “bequest,” “devise,” or “descent.” See Husband’s Brief at 29-30. The Statutory Construction Act of 1972 provides these definitions:
“Bequest.” — Includes devise and legacy.
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“Devise.” —Includes . . . bequest and legacy when used as a noun.
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“Legacy.” —Includes devise and bequest.
1 Pa.C.S. § 1991 (definitions); see Husband’s Brief at 29-30. The Merriam-Webster dictionary defines “descent,” in part, as “transmission or devolution of an estate by inheritance usually in the descending line.” https://www.merriam-webster.com/dictionary/descent.
Section 6108(a) of the PEC provides: “The designation of beneficiaries of life insurance . . . shall not be considered testamentary and shall not be subject to any law governing the transfer of property by will.” 20 Pa.C.S. § 6108(a). This Court has stated:
It is clear that the naming of a beneficiary on a life insurance policy vests nothing in that person during the lifetime of the insured; the beneficiary has but a mere expectancy. Furthermore, the naming of a beneficiary on a life insurance policy is sui generis; it is not a conveyance of the insured’s assets.
Lindsey v. Lindsey, 492 A.2d 396, 398 (Pa. Super. 1985) (citations omitted). See also Trial Ct. Op. at 5, citing Knoche, 176 A. at 230-31 (“Where the right to change the beneficiary has been reserved in a life insurance policy, the beneficiary named has but a mere expectancy with no vested right or interest during the lifetime of the insured.”).
Concurring and Dissenting at 4-6 (footnote omitted).
Based on this analysis, Judge McCaffery concluded:
I would thus conclude Husband’s first claim may be resolved by applying the plain meaning of Section 3501 of the Divorce Code and Section 6108(a) of the PEC. The plain language of Section 3501 and Section 6108(a) is clear. As our statutes resolve this issue, I would not, as the Majority does, consider how our sister states have resolved similar claims. Any exception or accommodation in the statute must come from our legislature, and not by this Court’s selective modification of how the statute should apply in certain circumstances.
Concurring and Dissenting at 7.
Scott appealed the Court’s decision to the Pennsylvania Supreme Court, which granted his Petition for Allowance of Appeal to consider one question:
When it held that life insurance and IRA proceeds paid to only one spouse…was property “acquired by gift…bequest, devise or descent” and, therefore, not subject to equitable distribution, did the Superior Court erroneously disregard long-established Pennsylvania law, which provides that a designation of a beneficiary is not a “gift” and, instead, look to decisions from other states, whose laws are different?