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In a recent New Jersey Supreme Court case, Matter of Estate of Jones, 25 N.J. 584 (2025), a unanimous court found that a decedent’ s ex-wife was entitled to retain United States savings bonds that the decedent owned and that designated her as the beneficiary, notwithstanding the fact that the couple had divorced.

As background, Michael Jones (“Michael”) and Jeanine Jones (“Jeanine”) had married in 1990 and divorced in 2018 after separating in 2016 and entering a Property Settlement Agreement in 2017.  During their marriage, Michael had acquired U.S. savings bonds in which he named his then-wife, Jeanine, as the primary beneficiary of the bonds at Michael’s death.  When the couple divorced, the Property Settlement Agreement provided that Michael would agree to pay the sum of $200,000 to Jeanine over a course of years, but unfortunately, the Property Settlement Agreement made no mention of the existence of or rights under the U.S. savings bonds.

Michael passed away in 2019 without a Will (i.e., intestate). His daughter, Shontell, was appointed the administratrix of his estate. At his death, Michael had satisfied about $110,000 of the $200,000 owed to Jeanine under the Property Settlement Agreement, and thus about $90,000 of the debt remained.  Jeanine, as the designated beneficiary, cashed the savings bonds, then worth $77,000, and also filed a creditor claim against the estate for the remaining $90,000 still owed to her from Michael. The estate rejected the creditor claim and took the position that Michael’s obligation to Jeanine under the Property Settlement Agreement had been satisfied through Jeanine’s receipt of $77,000 worth of U.S. Savings bonds.    By contrast, Jeanine argued that she was entitled to the $77,000 from the U.S. savings bond because she was the named beneficiary on the bonds, outside the Will, and that, in addition, she was still entitled to full repayment on the outstanding obligation.

Under New Jersey statutory law, N.J.S.A. 3B:3-14, generally, upon final judgment for divorce, a former spouse loses all rights of inheritances under a Will, Trust, Deed or other transfer document.  As relevant, the statute reads: “Except as provided by the express terms of a governing instrument… or contract relating to the division of the marital estate made between the divorced individuals before or after the marriage… [divorce] revokes any revocable . . . appointment of property made by a divorced individual to his former spouse in a governing instrument.” A “governing instrument” is defined under N.J.S.A. 3B:1-1 to include a “transfer on death” (TOD) arrangement like a U.S. savings bond. Thus, at first blush, the estate’s position would have been the correct approach.  The estate would be entitled to the funds and Jeanine’s receipt would partially satisfy the obligation.

However, in this circumstance, the Supreme Court noted that the obligations under the savings bonds are also governed by federal law since they represent federal debt obligations, and therefore the federal regulations are also a “governing instrument” for purposes of N.J.S.A. 3B:3-14.  The relevant federal regulation, as quoted by the Court, provides that, at the death of the owner of a bond registered in beneficiary form, “the beneficiary will be recognized as the sole and absolute owner of the bond.” 31 C.F.R. 353.70(c)(1). Thus, in accordance with federal law, the individual in possession of the bonds is entitled to ownership.  In other words, as is often jokingly said “possession is 9/10ths of the law” and here that really works.

Prior to the Supreme Court’s decision, the Appellate Division had held that the federal regulation “pre-empted” the New Jersey statute. Generally, the “pre-emption” rule provides that if a federal statute and state statute are directly in conflict, the federal statute, and not the state statute, will be respected.  The Appellate Division found that the federal regulation and state statute conflicted, and as a result held that the federal regulation, declaring the TOD beneficiary as the absolute owner at death of the principal, pre-empted New Jersey’s statute revoking the TOD designation upon divorce.

The Supreme Court, however, disagreed with the Appellate Division and found that the federal regulation and state statute did not directly conflict. Instead, the Court found that the statutes could be read consistently with one another. The Court focused on the fact that the New Jersey statute provides for the automatic revocation of a TOD beneficiary designation unless the “governing instrument” provides otherwise and found that the “governing instrument” in this case was the federal regulation itself. Therefore, because the federal regulation (the governing instrument) stated that Jeanine was the sole and absolute owner of the bonds instantaneously upon Michael’s passing, the TOD beneficiary designation was not automatically revoked at divorce.  Thus, the Supreme Court held that Jeanine was entitled to the $77,000. Further, because Jeanine was entitled to the bonds as a result of the TOD designation, the Court held that Michael’s remaining financial obligation to Jeanine under the Property Settlement Agreement was separate and apart from the bonds, and the bonds could not be credited against the amount still owed to Jeanine. The estate was therefore obligated to Jeanine for the payments remaining under the Property Settlement Agreement.

The Jones case illustrates several important concepts.  First, it is important in property settlement agreements for matrimonial counsel to be sure that they capture all of the assets.  A key factor here was that the Property Settlement Agreement was silent as to the existence of the bonds.  Had they indicated in the Property Settlement Agreement that the payment of the bonds to Jeanine would be a deemed payment on the debt, perhaps the result would have been different.  Second, individuals in the process of divorce should make sure they attend to the details of their estate plans, and their beneficiary designation provisions, both during the pendency of the divorce and after the divorce is finalized.  While a statute can serve to correct many unanticipated ills, a safer approach is to ensure that the client’s wishes are protected by specifically making sure that the estate plan and beneficiary designations are updated as intended.  Finally, our decedent in this matter, Michael, passed away “intestate”, i.e., without a Will, indicating that he had paid little attention to his plan. Thus, perhaps it was his own fault for failing to attend to important details concerning the disposition of his wealth.

In the view of the author, the narrow vision of the Supreme Court’s ruling is unfortunate. In New Jersey, there is a long-standing judicial doctrine called the “Doctrine of Probable Intent” (so engrained in the law that it was codified, see N.J.S.A. 3B:3-33.1 and N.J.S.A. 3B:31 – 32) where courts will strain to ascertain a decedent’s intentions and apply an estate plan in accordance with the “probable intent” of the deceased.   It is not difficult to imagine that in many circumstances, a decedent would not want their wealth to pass to a former spouse instead of their children.  Indeed, as Justice Breyer noted in the case of Egelhoff v. Egelhoff when discussing a similar statute from the State of Washington that provided for a beneficiary designation of a spouse under a retirement plan to be automatically revoked at divorce: “divorced workers more often prefer that a child, rather than a divorced spouse, receive those assets. Of course, an employee can secure this result by changing a beneficiary form; but doing so requires awareness, understanding, and time. That is why Washington, and many other jurisdictions have created a statutory assumption that divorce works a revocation of a designation in favor of an ex-spouse. That assumption is embodied in the Uniform Probate Code; it is consistent with human experience; and those with expertise in the matter have concluded that it ‘more often’ serves the cause of ‘[j]ustice.’”. 532 U.S. 141, 158-59 (2001) (Breyer, J., dissenting).

However, the Jones decision is an example of a circumstance where a hyper-technical reading of statutes thwarted what could be presumed to have been the decedent’s “probable intent.”  This case is another critical reminder that it is always better for a client to address the transfer of their assets through thoughtful estate planning documents, rather than relying on the state or courts to craft the estate plan for the client.