Consequences of Failing to Update Beneficiaries after Divorce

Divorce can be a challenging and emotionally draining experience, leaving individuals with numerous legal and personal matters to resolve. Amidst all the turmoil, it is vital for people to understand the significance of updating beneficiaries on various accounts and financial instruments. Failing to update beneficiaries after a divorce is over can have serious consequences, as illustrated in the recently decided case of In the Matter of the Estate of Michael C. Jones.

In this particular case, Michael and Jeanine Jones were married in 1990 and divorced in 2018. Their divorce settlement required Michael to pay Jeanine $200,000, with a provision that any outstanding payments would become a debt owed by his estate in the event of his death.

Despite their divorce, Michael and Jeanine maintained a relatively amicable relationship. In November 2019, Michael became ill and underwent emergency surgery but unfortunately only survived several days thereafter. Prior to his passing, Michael executed a banking power of attorney appointing Jeanine as his attorney-in-fact while he was in palliative care. Jeanine organized Michael’s funeral, paid his bills, and took care of their former marital home, which Michael had kept post-divorce. At the time of his death, Michael had already paid Jeanine approximately $100,000 in accordance with their divorce settlement.

During her time at Michael’s residence, Jeanine discovered several US series EE bonds which designated her as the pay-on-death beneficiary. She cashed them in and received over $77,000.

Following Michael’s death, his daughter from a previous relationship applied to the court to be appointed as the administrator of his estate. She argued that since Jeanine had received $77,000 from the bonds, the estate only owed her $23,000 in accordance with the divorce settlement. Jeanine countered this claim, asserting that the bonds were not included in the money still owed to her under the terms of the divorce agreement.

Under New Jersey law, a divorce or annulment automatically revokes any beneficiary nominations on financial instruments, unless explicitly stated otherwise. It also terminates the former spouse’s interest in jointly held property, such as assets held as tenants by the entirety or joint tenants with right of survivorship. The purpose of this law is to protect individuals who unintentionally neglect to update their beneficiary designations after divorce.

Jeanine, however, argued that federal law governed the beneficiary designations on the treasury bonds, and therefore federal law superseded state law in this matter. The trial court disagreed and included the $77,000 as part of the $200,000 owing to Jeanine according to the divorce settlement. Jeanine subsequently appealed to the New Jersey Appellate Division, which sided with her, stating that federal law takes precedence over state law and that she was entitled to both amounts.

The key takeaway from this case is the critical importance of reviewing and updating beneficiary designations after a divorce. By ensuring beneficiaries are up to date, individuals can ensure that their assets, such as life insurance policies, retirement accounts, and investment portfolios, are passed on to the intended recipients. Failing to update beneficiaries may result in an ex-spouse receiving assets meant for someone else. Conversely, if it is desired for a former spouse to remain as a beneficiary, it is crucial to explicitly document this intention. Neglecting to do so can lead to unintended financial consequences and potential family conflicts.

Divorce is a complex process that requires meticulous attention to detail, particularly in matters of financial planning. Updating beneficiaries is a critical part of this process and should not be overlooked.

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