Federal Regulations Preempt Inconsistent State Law
In re Jones, Docket No. A-2944-21 (N.J. Super. App. Div. Nov., 14, 2023)
Michael Jones (“Decedent”) was married to Jeanine Jones (“Jeanine”) in 1990. The couple divorced in January 2018. The Decedent and Jeanine’s Divorce Settlement Agreement (“DSA”) stipulated, in relevant part, that any retirement and bank accounts would be retained by the party in whose name the account was listed and that the other relinquished any right to those accounts. Jeanine also waived the right to inherit from Michael’s estate at his death if Michael fulfilled his financial obligations under the DSA.
The Decedent entered the hospital for emergency surgery in November 2019. On November 14, 2019, the Decedent signed a Power of Attorney appointing Janine as his attorney-in-fact. That same day, Janine withdrew $17,000 from Michael’s bank account. The Decedent died intestate on November 16, 2019 without having fulfilled all of the financial obligations under the DSA.
After the Decedent’s death, Jeanine admitted to redeeming a number of U.S. Series EE Bonds owned by the Decedent naming her as the pay-on-death beneficiary. Jeanine collected $77,864.40 from redeeming the bonds, which she found in the Decedent’s home while she was purportedly caring for it after his death.
The Decedent’s child from a previous relationship filed a complaint seeking appointment as administrator of her father’s estate and, importantly, a full accounting from Jeanine. Jeanine filed an answer and counterclaims that sought the remainder of her entitlements under the DSA. Jeanine also filed a creditor’s claim against the estate for monies owed under the DSA and reimbursement of other end of life costs of the Decedent.
Jeanine appealed the trial court’s determination that Jeanine’s receipt of the bond proceeds “counted against” what she was owed under the DSA. She also appealed the court’s ruling that the bonds were part of the Decedent’s estate under state law because federal securities law stated to the contrary.
The Appellate Division disagreed with the trial court’s interpretation of the DSA and application of state law to the federal bonds.
The Appellate Division turned to the United States Supreme Court decision in Yiatchos v. Yiatchos, which reaffirmed that survivorship provisions of federal regulations prevail over inconsistent state laws. 376 U.S. 306, 311 (1964). Under federal regulations, to change a bond’s registration, including changes in ownership pursuant to court orders (including divorce orders), a Series EE bond (like the one owned by the Decedent) must be reissued. The Appellate Division concluded that this federal regulation preempts N.J.S.A. § 3B:3-14, which states that divorce automatically revokes any revocable disposition or appointment of property made by a divorced individual to his former spouse.
As a result, the federal regulations preempt New Jersey statute and Jeanine was deemed entitled to the bond proceeds outright and not as a credit against what she was otherwise entitled to under the DSA.