A recent court case points out the importance of making changes to beneficiary designations on financial assets after a divorce. The Supreme Court of New Jersey addressed the ownership of federal savings bonds after the death of the owner of the bonds. Michael Jones married Jeanine Jones in June 1990. Later that year, he started buying Series EE federal savings bonds through his employer and listed Mrs. Jones as the pay-on-death beneficiary.
They drafted a divorce settlement agreement (DSA) in October 2017 and in December Mrs. Jones filed for divorce. The final divorce judgment, which incorporated the DSA, was entered in January 2018. The DSA stipulated that Mr. Jones was obligated to pay Mrs. Jones $200,000 according to a specific payment schedule, with the payments ending in December 2020. The DSA also stipulated how the two would split their combined and separate assets. The DSA stated that any marital property not listed would belong to the party that currently held possession of it. The federal savings bonds were not listed in the DSA.
Mr. Jones died intestate on November 16, 2019. Mrs. Jones later redeemed the federal savings bonds for a sum of $77,864.40. Mrs. Jones filed a creditor’s claim seeking reimbursement for her expenditures on behalf of Mr. Jones and $100,000 she claimed was still owed to her under the terms of the DSA. In April 2021, the trial court decided that Mr. Jones’ $200,000 debt to Mrs. Jones had been satisfied because she redeemed the federal savings bonds. The appeals court reversed and held that, since the savings bonds became Mrs. Jones’ property as soon as Mr. Jones died, they cannot be considered part of Mr. Jones’ estate. Since they were not part of Mr. Jones’ estate, they were not subject to the terms of the DSA and could not be used to pay the debt Mr. Jones owed Mrs. Jones. The court decided that the estate must complete the payments to Mrs. Jones to make up the $200,000 total. In the Matter of the Estate of Michael D. Jones, deceased (N.J. No. 088877, January 27, 2025).
In 2020 the Mississippi legislature enacted statutes describing when a divorce will affect certain financial and property transactions. Some of those statutes are summarized below. MCA refers to the Mississippi Code Annotated, with the chapter, title and section number following.
MCA 91-29-1 addresses the effect of divorce on a Last Will and Testament as follows: If, after the testator makes a will, the testator’s marriage is dissolved by divorce, annulment, or a declaration that the marriage is void, unless the will expressly provides otherwise:
(1) All provisions in the will, including all fiduciary appointments (executor, trustee), shall be read as if the former spouse and each relative of the former spouse who is not a relative of the testator had failed to survive the testator; and
(2) All provisions in the will disposing of property to an irrevocable trust in which a former spouse or a relative of a former spouse who is not a relative of the testator is a beneficiary or is nominated to serve as trustee or in another fiduciary capacity or that confers a general or special power of appointment on a former spouse or a relative of a former spouse who is not a relative of the testator shall be read to instead dispose of the property to a trust the provisions of which are identical to the irrevocable trust, except any provision in the irrevocable trust: (A) Conferring a beneficial interest or a general or special power of appointment to the former spouse or a relative of the former spouse who is not a relative of the testator shall be treated as if the former spouse and each relative of the former spouse who is not a relative of the testator had disclaimed the interest granted in the provision; and (B) Nominating the former spouse or a relative of the former spouse who is not a relative of the testator to serve as trustee or in another fiduciary capacity, or trust protector, trust advisor, investment advisor or similar capacity, shall be treated as if the former spouse and each relative of the former spouse who is not a relative of the testator had died immediately before the dissolution of the marriage.
(c) Subsection (b)(2) does not apply if one (1) of the following provides otherwise: (1) A court order; or (2) An express provision of a contract relating to the division of the marital estate entered into between the testator and the testator’s former spouse before, during, or after the marriage.
MCA 91-29-15 provides that, where married persons create a jointly-owned trust, they get a divorce, and one of them later dies, the trust will be divided into two separate trusts containing the assets contributed by each
MCA 91-29-17 regarding joint or beneficiary bank and financial institution accounts states: If a decedent established a P.O.D. account, T.O.D. account, or other multiple-party account and the decedent’s marriage was later dissolved by divorce, annulment, or a declaration that the marriage is void, any payable on request after death designation provision with respect to that account in favor of the decedent’s former spouse or a relative of the former spouse who is not a relative of the decedent is not effective as to that spouse or relative unless: (1) The court decree dissolving the marriage designates the former spouse or the former spouse’s relative as the P.O.D. payee, T.O.D. payee, or beneficiary; or (2) After the marriage was dissolved, the decedent redesignated the former spouse or the former spouse’s relative as the P.O.D. payee, T.O.D. payee, or beneficiary; or (3) The former spouse or the former spouse’s relative is designated to receive the proceeds or benefits in trust for, on behalf of, or for the benefit of a child or dependent of either the decedent or the former spouse. If a designation is not effective under those circumstances, a multiple-party account is payable to the named alternative P.O.D. payee, T.O.D. payee, or beneficiary or, if an alternative P.O.D. payee, T.O.D. payee, or beneficiary is not named, to the estate of the decedent.
MCA 91-29-23 regarding life insurance beneficiary designations provides: (a) If a decree of divorce or annulment is rendered after an insured has designated the insured’s spouse as a beneficiary under a life insurance policy in force at the time of rendition, a provision in the policy in favor of the insured’s former spouse is not effective unless:
(1) The decree designates the insured’s former spouse as the beneficiary;
(2) The insured redesignates the former spouse as the beneficiary after rendition of the decree; or
(3) The former spouse is designated to receive the proceeds in trust for, on behalf of, or for the benefit of a child or a dependent of either former spouse.
(b) If a designation is not effective under subsection (a), the proceeds of the policy are payable to the named alternative beneficiary or, if there is not a named alternative beneficiary, to the estate of the insured.
(c) An insurer who pays the proceeds of a life insurance policy issued by the insurer to the beneficiary under a designation that is not effective under subsection (a) is liable for payment of the proceeds to the person or estate provided by subsection (b) only if:
(1) Before payment of the proceeds to the designated beneficiary, the insurer receives written notice at the home office of the insurer from an interested person that the designation is not effective under subsection (a); and
(2) The insurer has not interpleaded the proceeds into the registry of a court of competent jurisdiction in accordance with the Mississippi Rules of Civil Procedure.
MCA 91-29-25 pertains to beneficiary designations of retirement accounts and states: (a) If a decree of divorce or annulment is rendered after a spouse, acting in the capacity of a participant, annuitant, or account holder, has designated the other spouse as a beneficiary under an individual retirement account, employee stock option plan, stock option, or other form of savings, bonus, profit-sharing, or other employer plan or financial plan of an employee or a participant in force at the time of rendition, the designating provision in the plan in favor of the other former spouse is not effective unless:
(1) The decree designates the other former spouse as the beneficiary;
(2) The designating former spouse redesignates the other former spouse as the beneficiary after rendition of the decree; or
(3) The other former spouse is designated to receive the proceeds or benefits in trust for, on behalf of, or for the benefit of a child or dependent of either former spouse.
(b) If a designation is not effective under subsection (a), the benefits or proceeds are payable to the named alternative beneficiary or, if there is not a named alternative beneficiary, to the designating former spouse.
For help with estate planning and asset protection, including beneficiary strategies for various types of assets, call Courtney Elder Law Associates for a meeting with one of our lawyers.