Buchholz v. Storsve

Citations: 2007 SD 101; 740 N.W.2d 107; 2007 S.D. LEXIS 165; 2007 WL 2806880Docket: 24488

Court: South Dakota Supreme Court; September 26, 2007; South Dakota; State Supreme Court

Original Court Document: View Document

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Walter L. Buchholz, both individually and as the personal representative of Linda C. Buchholz’s estate, pursued a declaratory judgment against Harold E. Storsve, Linda's ex-spouse and named primary beneficiary of her South Dakota retirement plan. Linda, who had been married to Storsve until their divorce in 1975, did not change the beneficiary designation after the divorce, despite receiving annual statements reflecting this designation. After marrying Buchholz in 1979 and passing away in 2006, Storsve was still listed as the beneficiary.

Buchholz claimed entitlement to the retirement plan assets and filed a declaratory judgment action. The circuit court granted Buchholz's motion for summary judgment, concluding that SDCL 29A-2-804 automatically revoked Storsve's beneficiary designation upon the divorce, and that this statute did not violate the South Dakota Constitution's Contract Clause. Storsve appealed, raising issues regarding the court's application of SDCL 29A-2-804 and its constitutionality.

Both parties sought summary judgment, with undisputed material facts leading the court's review to focus solely on the legal application by the circuit court. Statutory interpretation is subject to de novo review, which also applies to the constitutionality of statutes. A law is presumed constitutional unless proven otherwise beyond a reasonable doubt.

The primary issue is whether the circuit court erred in applying SDCL 29A-2-804(b), which automatically revokes beneficiary designations upon divorce. Before 1982, this issue had not been addressed by South Dakota courts, and prior to 1995, the general rule in non-Uniform Probate Code (UPC) states was that divorce did not affect beneficiary designations. South Dakota adopted the UPC in 1995, enacting SDCL 29A-2-804, which states that a divorce revokes any revocable disposition of property made by a divorced individual to their former spouse unless otherwise specified in a governing instrument, court order, or contract.

Storsve does not dispute that Linda’s retirement account qualifies as a "governing instrument" under this statute. Storsve argues that applying SDCL 29A-2-804 retroactively violates the principle that statutes should have prospective effect unless explicitly stated otherwise. However, the South Dakota Legislature intended for UPC rules, including SDCL 29A-2-804(b), to apply retroactively. Specifically, SDCL 29A-8-101 states that the code applies to governing instruments executed by decedents dying on or after July 1, 1995, regardless of the execution date, unless a contrary intent is clearly indicated. Since Linda's governing instrument was executed before her death on November 8, 2006, SDCL 29A-2-804(b) applies as a rule of construction.

Other courts have applied the statute retroactively, with the Tenth Circuit Court of Appeals determining that the revocation-upon-divorce provision in 75-2-804(2) is a rule of construction, aligning with the donor's probable intention. This statute reflects the legislative view that a transferor, during divorce, is unlikely to wish to benefit an ex-spouse, attributing a typical donor’s intent that can be rebutted only by express terms in a governing instrument, court order, or marital estate division contract (SDCL 29A-2-804(b)). 

Storsve claims an exception applies to his case, arguing his retirement plan explicitly designates him as the beneficiary, which he contends meets the "express terms" exception. However, if the designation alone suffices for this exception, the statute would become redundant, as all governing instruments contain beneficiary designations. The interpretation requires that the governing instrument explicitly state that the beneficiary designation remains intact despite divorce. Since Linda’s plan lacks such terms, the exception does not apply.

Storsve contends that Linda's failure to remove him as the beneficiary implies her intent to maintain that designation despite their divorce. Courts have consistently rejected similar arguments, emphasizing that allowing a former spouse to claim intent based on inaction would undermine statutes designed to revoke beneficiary designations upon divorce. Specifically, an Arizona court noted that any redesignation of a former spouse must be in writing to be valid. In this case, there is no evidence that Linda reviewed her annual statements from SDRS, and her inaction does not indicate consent or a contrary intent to the divorce decree, which fully divided their marital assets. Thus, the circuit court correctly applied SDCL 29A-2-804 to revoke the beneficiary designation automatically.

Storsve also argues that retroactive application of SDCL 29A-2-804 violates the Contract Clause of the South Dakota Constitution by disrupting the expectation regarding beneficiary proceeds. The evaluation of a potential Contract Clause violation involves determining if a substantial impairment of a contractual relationship exists, considering if there is a contract, whether law changes impair it, and if the impairment is substantial. Courts have generally found that retroactive application of state redesignation statutes does not violate this clause, provided the impairment serves an important public purpose. Storsve references Whirlpool Corp. v. Ritter, which found a similar statute unconstitutional in a different context, but this decision has faced significant criticism from legal scholars and other rulings.

Storsve's claim of impaired contractual rights is dismissed as he only possesses an expectancy interest, not a vested interest, which fails to satisfy the necessary legal criteria. Linda, however, does have a vested contractual relationship with SDRS, entitling her designated beneficiary to her retirement account assets upon her death. The court referenced the Hanson case, which established that while a re-designation statute may change the presumptive beneficiary, it does not alter the fundamental obligations of the contract between the insured and insurer. Thus, the application of SDCL 29A-2-804 did not substantially impair Linda's contractual rights. Even if it were considered a substantial impairment, it would be deemed justified as the statute serves significant public purposes, such as promoting uniformity in probate law and reflecting legislative intent regarding beneficiary designations after divorce. The court concludes that SDCL 29A-2-804 is constitutional and was correctly applied in this case, affirming the decision. Justices and judges involved in the concurrence are also noted.