In In the Matter of the Estate of Michael D. Jones, Deceased (A-28-23/088877) (Decided January 27, 2025), the Supreme Court of New Jersey held that an ex-spouse’s rights as the pay-on-death beneficiary on her deceased ex-husband’s U.S. savings bonds were not superseded by the parties’ divorce. According to the Court, the entitlement to the savings bonds was separate and apart from the obligations pursuant to their divorce settlement agreement (DSA).
Facts of In the Matter of the Estate of Michael D. Jones
Decedent Michael Jones purchased U.S. savings bonds while he was married to Jeanine Jones. Michael designated Jeanine as the pay-on-death beneficiary for the savings bonds. When the couple divorced, they entered into a DSA that provided for the disposition of certain property but did not specifically list and dispose of the savings bonds. The DSA further required Michael to pay Jeanine a total of $200,000 over a period of time in installments. After Michael’s death, Jeanine redeemed the savings bonds, which were worth approximately $77,800. At the time of his death, Michael had paid Jeanine approximately $110,000 towards his $200,000 obligation under the DSA.
Michael’s daughter from a previous relationship, Shontell Jones, who was the administrator of Michael’s Estate, sought a determination that the Estate had fulfilled Michael’s obligations under the DSA, arguing that the $77,800 in savings bonds and other cash Jeanine retrieved from Michael’s accounts after his death counted toward the $200,000 Michael owed to Jeanine. The trial court agreed with the Estate and concluded that the savings bonds were part of the amount due to Jeanine under the parties’ DSA and counted towards Michael’s $200,000 obligation.
The Appellate Division reversed, finding that the DSA did not divest Jeanine of her rights to the savings bonds and that the trial court erred in applying state law to decide the disposition of the bonds instead of the federal regulations governing U.S. savings bonds.
NJ Supreme Court’s Decision in In the Matter of the Estate of Michael D. Jones
The New Jersey Supreme Court affirmed. It held that the DSA did not revoke Jeanine’s beneficiary status on the federal savings bonds and that the bonds’ redemption value could not offset the estate’s obligation to pay the outstanding balance under the DSA.
The New Jersey Supreme Court first addressed the preemption issue. It concluded that N.J.S.A. 3B:3-14 does not conflict with and is therefore not preempted by the federal statutes and regulations that govern U.S. savings bonds.
“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),” Justice Pierre-Louis explained. “As the New Jersey statute incorporates and follows the relevant federal regulations, we agree with the parties that preemption does not apply here.”
The New Jersey Supreme Court went on to find that because the federal regulations on savings bonds did not conflict with New Jersey divorce law, Jeanine’s entitlement to redeem the bonds was distinct from and unaffected by her rights under the DSA. In support, the Court noted that the DSA is silent regarding the bonds, and its broad catchall provision — that “[a]ny marital asset not listed below belongs to the party who has it currently in their possession” — simply confirms Jeanine’s ownership. “The Estate is correct that the U.S. savings bonds, which were marital assets not listed in the DSA, belonged to Michael at the time the DSA was executed and during his life,” Justice Pierre-Louis wrote. “The moment Michael passed away, however, Jeanine became the sole owner of the bonds as the pay-on-death beneficiary per 31 C.F.R. § 353.70(c)(1).”