Beneficiary Designations After Divorce
Feb 3, 2025 | Written by: | Share
On January 27, 2025, the New Jersey Supreme Court published a decision, In the Matter of the Estate of Michael D. Jones, Deceased, in which the Court considered whether an ex-spouse’s rights as the pay-on-death beneficiary on her deceased ex-husband’s U.S. savings bonds were superseded by the parties’ divorce.
The parties’ divorce settlement agreement (DSA) provided that the husband would pay the wife $200,000 (total) over a period of time, in installments.
While married, the husband purchased Series EE Federal savings bonds and named his wife as his beneficiary of same. The parties were thereafter divorced and entered into a settlement agreement, but did not specify in said agreement what was supposed to happen to these savings bonds. The agreement indicated that any asset not listed “belongs to the party who has it currently in their possession.” After the husband died, his former wife redeemed the savings bonds. The ex-wife also sued her ex-husband’s estate to collect the balance due to her per their divorce agreement. His estate objected, claiming that the savings bonds satisfied his obligations, and this lawsuit ensued.
The Appellate Division held that the wife’s entitlement to the savings bonds was separate and apart from the husband’s obligations under their divorce agreement.
The NJ Supreme Court agreed, and held that New Jersey law does not conflict with federal survivorship regulations. On the contrary, the statute explicitly defers to “the express terms of a governing instrument,” N.J.S.A. 3B:3-14(a), and the pay-on-death U.S. savings bonds in dispute here, as regulated by the federal government that issued them, are the relevant “governing instruments” (see N.J.S.A. 3B:1-1 to -2). Because N.J.S.A. 3B:3-14(a) does not supersede the terms of a governing instrument, and because the terms of the bonds at issue here prevent the automatic revocation of a pay-on-death provision following a divorce, no such automatic revocation occurred under the exception set forth in Section 3- 14(a). As the New Jersey statute incorporates and follows the relevant federal regulations, the court agreed that preemption did not apply here.
Regarding the Estate’s argument that the wife’s interest in the bonds was revoked by virtue of the Agreement between the husband and wife, the NJ Supreme Court found that that it was not.
The NJ Supreme Court held that the husband purchased the disputed bonds during his marriage to the wife and named her as the pay-on-death beneficiary. Thus, absent a valid transfer or removal of the wife’s status as beneficiary, the wife became, from the moment of the husband’s death, the sole owner of the bonds under 31 C.F.R. § 353.70(c)(1).
The Court stated that the Department of the Treasury will not recognize “a judicial determination that impairs the rights of survivorship conferred by [the] regulations upon a co-owner or beneficiary.” Id. at .20(a). The trial court’s holding here -- which assumed that the husband sought to divest the wife of the savings bonds by virtue of their divorce -- is exactly the type of judicial determination the federal regulations do not allow. The trial court’s ruling impaired the wife’s right of survivorship as beneficiary of the bonds based on nothing more than its assumption that the husband likely intended to do so. The trial court did so even though the terms of the parties’ DSA -- which did not impair the wife’s right -- should govern under both state law contract principles (see County of Atlantic, 230 N.J. at 254, and the federal regulations that require clear expression in a divorce decree and further steps, like 21 reissuance and proof of valid judicial proceedings (see 31 C.F.R. § 353.22(a), .23(a)). In essence, the trial court’s decision accomplished what N.J.S.A. 3B:3- 14(a) declines to do through its deference to governing instruments: the decision created an automatic transfer of the bonds notwithstanding state and federal statutes and regulations preventing such a transfer. Thus, although the court disagreed that Section 3-14(a) is preempted by federal law, the Appellate Division correctly reversed the trial court’s judgment. Given that the DSA did not direct the disposition of the savings bonds, the bonds had no bearing on the husband’s -- and later the Estate’s -- obligation to pay the wife $200,000. The approximately $77,800 in savings bonds that the wife redeemed upon the husband’s death should not have been credited against the $200,000 because the bonds were separate and apart from that obligation. Pursuant to the DSA, the Estate must make whatever payments remain to the wife of the $200,000 amount.
Similarly, in Kennedy v. Plan Administrator for Dupont Savings and Investment Plan, a United States Supreme Court case, the unanimous court held that an ex-wife’s waiver of any rights under her husband’s savings and investment plan (SIP) in a divorce decree that was not a QDRO did not control her ex-husband’s designation of her as his beneficiary in accordance with the terms and forms of the SIP, at least as to how the plan should make out checks, if not as to who should ultimately get the money.
In that matter, William and Liv divorced in 1994. Their divorce decree divested Liv of her interest in the SIP. For reasons never explained, however, William did not execute the form removing Liv as the SIP beneficiary. He did change the beneficiary designation for his pension plan, naming his daughter as beneficiary, but he never altered the beneficiary under the SIP. William died in 2001. The plan administrator relied on William’s designation form and paid the benefits to Liv. The Estate sued, alleging that Liv had waived her pension plan benefits in the divorce and that the plan had thus violated ERISA by distributing the benefits to her.
The court focused on “administrative ease,” and held that where a plan participant has a clear set of instructions for manifesting his intent to name or change a beneficiary, ERISA does not allow the plan to go beyond those instructions, to foster “simple administration, avoiding double liability, and ensuring that beneficiaries get what’s coming quickly, without the folderol essential under less-certain rules.”
The important takeaway of these cases is that your divorce agreement may not be sufficient to dictate what will happen upon your death. In all cases, it is critically important to ensure you confirm when you may change your beneficiary designation on your accounts. You should confer with not only your divorce and estate attorneys on this matter, but also the employer or fiduciary who holds your accounts, to ensure that all correct paperwork has been completed. Even if your divorce agreement were to provide that you retain your pension, for example, and your spouse has waived any right to same, if you were to fail to modify your pension beneficiary and left your (ex) wife as the beneficiary of same, she may be entitled to receive the asset regardless. This could be not only contrary to your negotiated divorce agreement but also your wishes, particularly about your former spouse receiving retirement assets.
Diana N. Fredericks, Esq., devotes her practice solely to family law matters. She is a Certified Matrimonial Law Attorney and was named to the NJ Super Lawyers Rising Stars list in the practice of family law by Thomson Reuters from 2015 through 2021, to the NJ Super Lawyers list in 2023 and 2024, and to the New Leaders of the Bar list by the New Jersey Law Journal in 2015. Contact Ms. Fredericks for a consultation at 908-735-5161 or via email.
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Any statements made herein are solely for informational purposes only and should not be relied upon or construed as legal advice.