The Supreme Court of New Jersey affirms the appellate court’s decision to overturn the trial court’s decision regarding the ownership of federal savings bonds after the death of the owner of the bonds. The court finds that the ex-wife of the bonds’ owner became sole owner of the bonds when her ex-husband died because she was the pay-on-death beneficiary; therefore, the bonds did not become part of his estate. And since they were not part of his estate, they did not count as payment on the debt the estate owed the ex-wife. In the Matter of the Estate of Michael D. Jones, deceased (N.J. No. 088877, January 27, 2025).
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.
On February 14, 2020, Shontell Jones, Mr. Jones’ daughter from a relationship prior to the one with Mrs. Jones, filed an amended complaint and order to show cause seeking numerous forms of relief and appointment as administrator of Mr. Jones’ estate. In June 2020, the trial court granted Shontell’s requests.
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. On behalf of Mr. Jones’s estate, Shontell filed a notice of rejection of Mrs. Jones’s claim, arguing that Mr. Jones’ financial obligations under the DSA had already been satisfied through redemption of the federal savings bonds. The estate continued to maintain that Mrs. Jones owed money to the estate.
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. Mrs. Jones moved for reconsideration, arguing that the bonds were separate from the DSA and the estate. The trial court denied Mrs. Jones’ motion for reconsideration, holding that she was unable to establish that there was palpable error or mistake. Mrs. Jones appealed.
The appellate court reversed the trial court’s judgment, stating that it disagreed with the judge’s legal determinations regarding the interpretation of the DSA as well as the application of state law to the disposition of federal savings bonds.
The estate asks the court to reverse the appellate court’s decision asserting that the bonds did not fulfill the estate’s obligation to Mrs. Jones under the terms of the DSA. The estate also argues that the appellate court erred in concluding that state statutes preempt federal regulations regarding federal savings bonds.
Mrs. Jones urges the court to affirm the appellate court’s ruling that the bonds were not part of the $200,000 owed to her through the DSA. She argues that her beneficiary status for the federal savings bonds was not automatically revoked when she and Mr. Jones divorced; therefore, the bonds became her property when Mr. Jones died.
The court finds that New Jersey law does not supersede the terms of the federal savings bonds. Since the pay-on-death provision of the savings bonds is not automatically revoked following a divorce, no revocation occurred and the savings bonds became Mrs. Jones’ when Mr. Jones died.
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 affirms the appellate court’s decision and determines that the estate must complete the payments to Mrs. Jones to make up the $200,000 total.
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