Walter L. Buchholz, et al. v. Harold E. Storsve, et al.

[1.] Linda C. Buchholz (Linda) passed away, leaving a State of South Dakota retirement plan naming her ex-spouse, Harold E. Storsve (Storsve), as the primary beneficiary. Linda's surviving spouse, Walter L. Buchholz (Buchholz), filed a declaratory judgment action seeking revocation of the retirement plan's beneficiary designation and an order declaring Buchholz the lawful beneficiary of Linda's retirement account. The parties filed cross-motions for summary judgment. The circuit court granted Buchholz's motion for summary judgment. We affirm.

FACTS AND PROCEDURAL HISTORY

[2.] Linda and Storsve were married on October 18, 1966. On June 10, 1969, Linda began working for Black Hills State College (now Black Hills State University) in Spearfish, South Dakota. As a state employee, Linda participated in the retirement plan administered through the South Dakota Retirement System (SDRS).1 She started making contributions on July 1, 1971, and named her then husband, Storsve, as the primary beneficiary of her retirement plan.2

[3.] On June 4, 1975, Linda and Storsve divorced. Neither the divorce decree nor the associated findings of fact and conclusions of law made any reference to Linda's retirement plan. The only related conclusion stated that "each of the parties [is] awarded all of his or her personal property." Linda received annual statements setting forth the status of her retirement account, which, until 1996, also listed her designated primary beneficiary. Linda did not amend, change or remove Storsve as the designated beneficiary of her retirement account after their divorce.

[4.] Linda later married Buchholz on October 1, 1979. Approximately three years after Linda and Buchholz married, Linda quit working for Black Hills State College. Linda passed away on November 8, 2006, while still married to Buchholz. At the time of her death, Storsve was still the named beneficiary on her South Dakota retirement plan. After Linda's death, SDRS informed Storsve that he was the named beneficiary of Linda's retirement plan.

[5.] Despite this designation, Buchholz claimed that he was entitled to the assets from Linda's retirement plan and brought a declaratory judgment action to determine his legal rights to the same. Both parties submitted motions for summary judgment. After a hearing on both motions, the circuit court denied Storsve's motion and granted Buchholz's concluding that SDCL 29A-2-804 automatically revoked the beneficiary designation in the name of Storsve upon Storsve and Linda's divorce; that SDCL 29A-2-804 did not violate the Contract Clause of the South Dakota Constitution; and that Buchholz was the lawful beneficiary of Linda's South Dakota retirement account.

[6.] Storsve appeals raising the following issues:

1. Whether the circuit court erroneously applied SDCL 29A-2-804(b) to automatically revoke the beneficiary designation in the name of Storsve.

2. Whether application of SDCL 29A-2-804 is unconstitutional.

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[9.] Prior to 1982, this issue had not been addressed by this Court or by statute. While the Uniform Probate Code was passed by the South Dakota Legislature in 1974, see 1974 SD Sess. Laws ch 196, and subsequently repealed in 1976, see 1976 SD Sess. Laws ch 175 § 2, ch 177 § 3, it did not contain the provision that was to become SDCL 29A-2-804, which is at issue in this case. Until 1995, the general rule outside South Dakota in non-UPC states was that divorce did not affect a beneficiary designation. See Girard v. Pardun, 318 NW2d 137, 138-40 (SD 1982). In Girard we adopted this rule. Id. at 140.

[10.] However, in 1995, South Dakota adopted the Uniform Probate Code (UPC), which resulted in the enactment of SDCL 29A-2-804. This statute provides in pertinent part:

(b) Except as provided by the express terms of a governing instrument, a court order, or a contract relating to the division of the marital estate made between the divorced individuals before or after the marriage, divorce, or annulment, the divorce or annulment of a marriage:

(1) Revokes any revocable (i) disposition or appointment of property made by a divorced individual to a former spouse in a governing instrument . . . .

SDCL 29A-2-804(b) (emphasis added). The statute defines "[g]overning instrument" as "a will, trust, or other governing instrument executed by the divorced individual before the divorce or annulment of the individual's marriage to the former spouse." SDCL 29A-2-804(a)(4). The South Dakota Uniform Probate Code generally defines "[g]overning instrument" to encompass a number of documents, including "a . . . retirement, or similar benefit plan. . . ." SDCL 29A-1-201(19). Storsve does not dispute the fact that Linda's retirement account qualifies as a "governing instrument" under SDCL 29A-2-804(b).

[11.] Storsve contends that applying SDCL 29A-2-804 in this case violates the fundamental rule of statutory construction that statutes are to only have prospective effect unless a retroactive effect is clearly intended. See Fed. Farm Mortgage Corp. v. Noel, 66 SD 481, 285 NW 871, 872 (1939). However, the South Dakota Legislature has made it clear that it intended UPC rules of construction, such as SDCL 29A-2-804(b), to apply retroactively. SDCL 29A-8-101 provides in pertinent part:

(a) This code takes effect on July 1, 1995.

(b) Except as provided elsewhere in this code:

. . .

(2) This code applies to governing instruments executed by decedents dying on or after July 1, 1995, no matter when executed. Any rule of construction or presumption provided in this code applies to governing instruments executed before July 1, 1995, unless there is a clear indication of a contrary intent. . . .

(Emphasis added). The governing instrument in this case was executed by Linda who died on November 8, 2006, eleven years after July 1, 1995. Thus, SDCL 29A-2-804(b) applies to the governing instrument provided it is considered a "rule of construction."

[12.] Other courts that have addressed this issue have applied the statute retroactively. For instance, the Tenth Circuit Court of Appeals held "the revocation-upon-divorce provision set forth in § 75-2-804(2) is a rule of construction, and thus falls within coverage of the effective-date provision. . . ." Stillman v. Teachers Ins. & Annuity Ass'n College Retirement Equities Fund, 343 F3d 1311, 1317 (10thCir 2003). "[I]n the law of donative transfers, ‘rules of construction . . . aid in determining and giving effect to the donor's intention or probable intention[.]'" Id. (quotation omitted). Since the revocation-upon-divorce statute attempts to effectuate the intention of the donor, it is a rule of construction. Id. The Stillman court reasoned:

The Uniform Probate Code provision on which § 75-2-804(2) is modeled derives from the recognition "that when spouses are sufficiently unhappy with each other that they obtain a divorce, neither is likely to want to transfer his or her property to the survivor on death." Revocation-upon-divorce statutes "reflect the legislative judgment that when the transferor leaves unaltered a will or trust or insurance beneficiary designation
in favor of an ex-spouse, this failure to designate substitute takers more likely than not represents inattention rather than intention." Thus, § 75-2-804(2) attributes an intent to the donor based on an assessment of a typical donor's intention. We also note that this statutory attribution of intent is rebuttable. It applies "[e]xcept as provided by the express terms of a governing instrument [such as an annuity contract], a court order, or a contract relating to the division of the marital estate. . . ."

Id. at 1318 (internal quotations omitted) (alterations in original). See also Allstate Life Ins. Co. v. Hanson, 200 FSupp2d 1012, 1016 (EDWis 2002) ("[t]he legislature [ ] applied the 1998 revisions retroactively").

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