Death during Pendency of Divorce Proceedings where Post-nuptial Agreement Already Executed; Impact on Insurance Proceeds under 20 Pa.C.S. § 6111.2 and on Pension Benefits under ERISA
This case involves the effect on the right to a decedent’s pension and insurance proceeds where the decedent dies intestate during the pendency of a divorce proceeding from his spouse after the execution of a postnuptial agreement but before the entry of a final decree in divorce. Colleen, Michael Easterday’s second wife, initiated divorce proceedings in August 2013; both parties signed consent to divorce affidavits, and filed them in January 2014, but Easterday’s was dated more than 30 days before it was filed, and pursuant to Pa.R.C.P. 1920.42(b), affidavits of consent must be filed within thirty days of the date the consents are executed. Colleen thereafter filed a praecipe for divorce finalization.
The parties also executed a postnuptial agreement in December 2013, wherein they agreed to waive any rights in and to the pension and retirement plans of the other, including any right the parties may have as a surviving spouse or beneficiary thereof. The agreement provided that it was to remain in full force and effect regardless of reconciliation, a change in marital status or the entry of a final divorce decree, absent modification or termination of the agreement by the parties’ written mutual consent. The parties never terminated or modified the agreement.
Easterday died intestate in September 2014, before the divorce decree was entered. At the time of Easterday’s death, Colleen remained the named beneficiary of his pension and life insurance policy. Three days after Easterday’s death, Colleen withdrew the divorce action. Colleen took possession of both the pension benefits and the life insurance proceeds, and Easterday’s son, the administrator of the Estate, petitioned to have the funds returned to the Estate, arguing: (1) the parties’ post nuptial agreement controlled the disposition of the pension proceeds and required that distribution be made to the Estate regardless of the beneficiary designation; and (2) Easterday’s designation of Colleen as beneficiary of his insurance policy became ineffective under 20 Pa.C.S.A. § 6111.2. The Orphans’ Court concluded that Colleen was entitled to the insurance proceeds, but the Estate was entitled to Easterday’s pension benefits. Both parties appealed and the Superior Court affirmed.
As to the Estate’s appeal on the insurance proceeds issue, the Superior Court disagreed with the Orphans’ Court’s reasoning but affirmed its result. The Orphans’ Court had concluded that, because Colleen withdrew the divorce action after Easterday died, the proper course was to proceed as if the action had never been filed and award the proceeds in accordance with the policy’s beneficiary designation. The Orphans’ Court found the provision of the Probate, Estates and Fiduciaries (“PEF”) Code regarding the effect of a pending divorce on beneficiary designations, section 6111.2, to be inapplicable. That statute provides that, where a domiciliary of the Commonwealth designates his spouse as beneficiary of a life insurance policy and dies (1) during the course of divorce proceedings in which (2) no decree of divorce has been entered and (3) grounds have been established as provided in 23 Pa.C.S.A. § 3323(g) (here, the grounds would be timely filed affidavits of consent to divorce), the spousal designation becomes ineffective for all purposes and must be construed as if the spouse or former spouse had predeceased the individual. The Orphans’ Court concluded that this result was compelled by Tosi v. Kizis, 85 A.3d 585 (Pa. Super. 2014).
The Superior Court disagreed, observing that Tosi “effectively granted any surviving spouse the unilateral power to determine whether the assets of the deceased spouse would be distributed under the Divorce Code or the PEF Code, based solely on the self-interest of the surviving spouse, where grounds for divorce had been established.” For that reason, the Superior Court observed, Rule of Civil Procedure 1920 was amended before the Orphans’ Court decision was rendered so as to disapprove the broad effect of Tosi:
Rule of Civil Procedure 1920.17, effective July 1, 2015. Rule 1920.17 provides, in relevant part, as follows:
(d) In the event one party dies during the course of the divorce proceeding, no decree of divorce has been entered and grounds for divorce have been established, neither the complaint nor economic claims can be withdrawn except by the consent of the surviving spouse and the personal representative of the decedent. If there is no agreement, the economic claims shall be determined pursuant to the Divorce Code[.]
Pa.R.C.P. 1920.17(d). The note to Rule 1920.17 specifically provides that “[t]o the extent that Tosi  holds that 23 Pa.C.S. 3323(d.1) does not prevent the plaintiff in a divorce action from discontinuing the divorce action following the death of the defendant after grounds for divorce have been established, it is superseded.” Pa.R.C.P. 1920.17(d), note.
Slip Op. at 7-8.
The Superior Court reasoned that, although the amendment to Rule 1920 “superseded Tosi specifically as it applied to section 3323(d.1) of the Divorce Code, and did not address the possible application of its rationale to section 6111.2 of the PEF Code,” the Court’s adoption of Rule 1920.17 “provides a clear indication that the Court would look with similar disfavor upon an interpretation of section 6111.2 that would grant a surviving spouse/plaintiff the power to negate the intent of the statute – to protect a divorcing spouse from inadvertently providing a windfall to his or her surviving ex-spouse simply by neglecting to change a beneficiary designation – by discontinuing the divorce action after grounds have been established.”
Having concluded that Tosi was not dispositive as the Orphans’ Court had held, the Superior Court went on to affirm the result, determining that “the key inquiry in this matter becomes whether or not grounds have, in fact, been established pursuant to 23 Pa.C.S.A. § 3323(g), such that the disposition of the insurance proceeds is determined under section 6111.2.” The Superior Court concluded that grounds for divorce were not established, such that Colleen, not the Estate, gets the proceeds:
Where one party dies during the pendency of a divorce action, the establishment of grounds takes on added significance, as it will be the determinative factor in whether the parties’ economic issues are settled under the Divorce Code or the PEF Code. In effect, section 3323(d.1) treats the establishment of grounds as the functional equivalent to the entry of a final decree, where the death of one party renders such finality impossible. Given the added significance the establishment of grounds acquires under such circumstances, it is reasonable to conclude that the legislature intended to require compliance with the same procedural requirements precedent to the entry of a divorce decree. Consequently, we conclude that a “stale” affidavit of consent is insufficient to establish grounds under section 3323(g).
Slip Op. at 13-14.
As to the pension benefits, the Orphans’ Court had ruled that the post nuptial agreement entered into by the parties barred Colleen from retaining Easterday’s benefits under his FedEx pension plan and awarded them to the Estate. On appeal, Colleen asserted that, despite the terms of the agreement, Easterday made a deliberate and conscious choice to give his Fed-Ex pension to Colleen after he died by making an irrevocable election that Colleen was to be the designated survivor beneficiary, and that his intent was supported by evidence that the parties had reconciled after executing the agreement. The Superior Court rejected this argument, holding that the agreement was clear on its face so that extrinsic evidence of reconciliation could not be considered.
Colleen also argued that the Employee Retirement Income Security Act (“ERISA”) preempts Pennsylvania state law, specifically section 6111.2 of the PEF Code, as well as the terms of the parties’ post nuptial agreement. The Superior Court rejected this argument as well, reasoning:
In 2009, on facts similar to the matter sub judice, the Supreme Court decided Kennedy v. Plan Adm’r for DuPont Sav. & Inv. Plan, 555 U.S. 285 (2009). There, a participant in an ERISA pension plan designated his wife as his sole beneficiary. The couple subsequently divorced, and the wife waived her interest in her husband’s pension plan. However, the husband died without amending the pension plan documents to replace his ex-wife as the designated beneficiary. The husband’s estate claimed a right to the plan proceeds, citing the ex-wife’s waiver. The plan administrator, however, relied on the husband’s designation form and paid the funds to the ex-wife. The husband’s estate then sued the plan administrator to recover the benefits. The Supreme Court held that ERISA precluded the plan administrator from distributing the benefits to anyone but the named beneficiary, regardless of the existence of a valid waiver. The Court left open, however, the question of whether the estate could recover the benefits from the ex-wife after she received them from the plan administrator. This question was subsequently answered in the affirmative by the United States Court of Appeals for the Third Circuit in Estate of Kensinger v. URL Pharma, 674 F.3d 131 (3d Cir. 2012), in which the Court held, under facts nearly identical to Kennedy, that ERISA does not bar an estate from attempting to recover pension funds distributed to an exwife who had executed a waiver of rights to those funds.
Similarly, here, ERISA presents no bar to the Estate’s recovery of pension funds distributed to Colleen. Colleen’s waiver was clear and unequivocal and is binding. The Estate is entitled, under principles of state contract law, to enforce the bargain entered into between Colleen and the Decedent. Accordingly, the Orphans’ Court did not err in ordering that Colleen turn over to the Estate all sums received to date as beneficiary of Decedent’s FedEx pension plan, as well as all remaining proceeds thereof that she is entitled to receive under the plan documents.
Slip Op. at 20-21.
The Supreme Court has granted allocatur on cross petitions for allowance of appeal as to both issues:
(1) Did the Superior Court decision deviate from well-established principles of statutory construction when the lower court held that the General Assembly intended to incorporate the thirty-day procedural requirement of Pa.R.C.P. 1920.42(b), with regard to the filing of affidavits of consent in divorce actions, into 20 Pa.C.S. § 6111.2, where the language of section 6111.2 is clear and unambiguous and does not contain such time limitation? and
(2) Under an employee benefit plan governed by the Employee Retirement Income Security Act, 29 U.S.C. §§ 1001-1461, after a plan administrator distributes funds to the named beneficiary in accordance with the plan documents, can an estate attempt to recover those funds directly from the beneficiary pursuant to a contractual waiver of those benefits contained in a proper settlement agreement?