NJ Supreme Court Affirms Ex-Spouse’s Rights to Savings Bonds as Pay-on-Death Beneficiary, Unaffected by Divorce Settlement Agreement
In re Estate of Jones, 259 N.J. 584 (N.J. 2025)
The central issue was whether an ex-spouse’s rights as the pay-on-death beneficiary on her deceased ex-husband’s U.S. savings bonds were superseded by the parties’ divorce.
Michael Jones (“Decedent”) was married to Jeanine Jones (“Jeanine”) in 1990. The couple divorced in January 2018. The Decedent and Jeanine’s Divorce Settlement Agreement (“DSA”) stipulated, in relevant part, that any retirement and bank accounts would be retained by the party in whose name the account was listed and that the other party relinquished any right to those accounts. Jeanine also waived the right to inherit from Michael’s estate at his death if Michael fulfilled his financial obligations under the DSA.
The DSA further provided that Michael would pay Jeanine a total of $200,000 over a period of time, in installments.
The DSA was silent as to Jeanine’s interest in U.S. savings bonds owned by Michael. Jeanine was the pay-on-death beneficiary of those bonds.
The Decedent entered the hospital for emergency surgery in November 2019. On November 14, 2019, the Decedent signed a power of attorney appointing Jeanine as his attorney-in-fact. That same day, Jeanine withdrew $17,000 from Michael’s bank account.
The Decedent died intestate on November 16, 2019, without having fulfilled all of the financial obligations under the DSA.
After the Decedent’s death, Jeanine filed a creditor claim against Michael’s estate seeking to be paid $100,000 she claimed to be owed under the DSA.
Jeanine admitted to redeeming a number of U.S. Series EE Bonds owned by the Decedent and naming her as the pay-on-death beneficiary. Jeanine collected $77,864.40 from redeeming the bonds, which she found in the Decedent’s home after his death.
The Decedent’s child from a previous relationship filed a complaint seeking appointment as administrator of her father’s estate and a full accounting from Jeanine. Jeanine filed an answer and counterclaim that sought the remainder of her entitlements under the DSA. Jeanine also filed a creditor’s claim against the estate for monies owed under the DSA and reimbursement of other end-of-life costs for the Decedent.
The underlying focus in the litigation was whether Jeanine was entitled to the savings bonds as the named beneficiary at death, or whether the value of those bonds would be deducted against the amounts owed to her under the DSA.
The trial court ruled that Jeanine’s receipt of the bond proceeds counted against what she was owed under the DSA. That court also determined that the bonds were part of the Decedent’s estate under state law because federal securities law stated to the contrary.
Jeanine appealed.
The Appellate Division reversed and disagreed with the trial court’s interpretation of the DSA and application of state law to the federal bonds.
The Appellate Division turned to the United States Supreme Court decision in Yiatchos v. Yiatchos, which reaffirmed that survivorship provisions of federal regulations prevail over inconsistent state laws. 376 U.S. 306, 311 (1964). Under federal regulations, to change a bond’s registration, including changes in ownership pursuant to court orders (including divorce orders), a Series EE bond (like the one owned by the Decedent) must be reissued. The Appellate Division concluded that this federal regulation preempts N.J.S.A. § 3B:3-14, which states that divorce automatically revokes any revocable disposition or appointment of property made by a divorced individual to his former spouse. As a result, the federal regulations were determined to preempt New Jersey statutes, and Jeanine was deemed entitled to the bond proceeds outright and not as a credit against what she was otherwise entitled to under the DSA.
The New Jersey Supreme Court granted certification. 256 N.J. 519 (2024). The Court held that preemption was not at issue because N.J.S.A. § 3B:3-14 does not conflict with federal regulations that govern U.S. Savings Bonds. Moreover, since the DSA did not direct the disposition of the savings bonds, the bonds had no bearing on the obligation of Michael (and then his estate) to pay Jeanine the sums owed under the DSA; the value of the bonds should not have been credited against that obligation.
The New Jersey Supreme Court thus modified but affirmed the Appellate Division ruling.