On November 14, 2023, the Appellate Division decided an interesting case that implicated the intersection of family law, estate law and federal law. The reported (precedential) decision In the Matter of the Estate of Michael D. Jones, Deceased as issue was both compliance of equitable distribution payments under a divorce agreement as well as the disposition of US Savings bonds owned by the decedent that were payable on death to his former wife.

In this parties’ divorce, the husband agreed to pay the wife $200,000 in equitable distribution over time. By the time of his death, he only had paid $110,000. The agreement obligated his estate to pay any unpaid amounts of the obligation if he died before the ex wife.

The agreement also had typical waiver language, but there was caveats for the payments that had not yet been made. The agreement also listed assets that each would keep of their own. Not listed were more than $70,000 in US Series EE Savings bonds owned by the husband.

Before the husband’s death, he named his former wife as his power of attorney. Upon his death, she paid for certain medical and funeral expenses as well as expenses related to his house. She also found and cashed in the bonds that were payable on death to her.

His daughter from another relationship filed suit to act as administer his estate and to recover funds from the ex-wife, including the bonds. She also took the position that between the bonds, $12,000 paid before the divorce and another $17,000 she took from his account that wasn’t used, the obligation to her was satisfied. The trial judge, when granting partial summary judgment agreed.

The ex-wife appealed arguing that (1) federal law applied to the savings bonds and (2) the bonds were not specifically mentioned as the husband’s property in the divorce agreement. The Appellate Division agreed and reversed the trial court’s decision.

In doing so, there was a long discussion of both statutory and federal case law, including a US Supreme Court case. In doing so, the Court noted that, “A savings bond is a contract between the United States and the bond owner, and Treasury regulations are incorporated into the bond contract.” The court further noted that the United States Supreme Court extended the preemption holding to bonds held in the beneficiary form. Further, the Court noted that the Supreme Court held that “survivorship provisions of the federal regulations must control, preempting, if necessary, inconsistent state law which interferes with the legitimate exercise of the Federal Government’s power to borrow money.” As such, the Supreme Court held that “[u]nder the federal regulations, [the brother was] entitled to the bonds unless [the decedent] committed fraud or breach of trust tantamount to fraud” in designating him as beneficiary.

The Appellate Division noted that if the divorce agreement had listed the bonds as the decedent’s property, that would have been sufficient to override the prior payable on debt designation. Since that did not exist in the parties’ divorce agreement, the Appellate Division found that the was entitled to the bonds – not as an offset against the equitable distribution owed to her.

What wasn’t addressed, probably because it wasn’t necessary because summary judgment was reversed was the $12,ooo paid by the husband to the before the divorce, that was not addressed in the divorce agreement. Since it wasn’t in the agreement, I can’t see how that could stand either.

The takeaway here, however, is that had the divorce agreement included all assets, including the bonds, then the result is different. Put another way, more precision in a divorce agreement regarding which assets each party is to get is almost always the better practice.

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