Unintended Consequences of Divorce: Court Holds Oral Agreement Could Overcome Automatic Revocation On Divorce Statute
In a recent decision issued by the United States District Court for the District of New Jersey, the issue presented was whether an alleged oral agreement between divorced spouses was sufficient to overcome NJ’s automatic “revocation on divorce” statute. See Banner Life Insurance Company v. Song, 2024 WL 1270815 (D.N.J. Mar. 26, 2024).
By way of background, more than half of all U.S. states have enacted some type of revocation on divorce statute that automatically revokes a former spouse as a beneficiary under wills, trusts, life insurance policies, bank accounts and certain retirement accounts.
New Jersey’s revocation on divorce statute provides, in relevant part:
“a. Except as provided by the express terms of a governing instrument, a court order or a contract, . . . a divorce or annulment:
(1) revokes any revocable:
(a) disposition or appointment of property made by a divorced individual to his former spouse in a governing instrument . . . .”
N.J.S.A. 3B:3-14 (emphasis added).
In Banner Life Insurance, the decedent took out a $300,000 life insurance policy which designated his then-spouse as the sole beneficiary. Four years later, the couple divorced, but pursuant to an oral agreement between the parties, the decedent’s former spouse continued paying the policy premiums to remain listed as the sole beneficiary on the policy.
After the decedent passed, the premium-paying former spouse made a claim for the proceeds that the insurance company refused to process based on N.J.S.A. 3B:3-14. In addition, since the policy did not list any contingent beneficiaries, the insurance company sought out the decedent’s heirs who opened an estate for the decedent and ultimately made a competing claim for the proceeds.
To resolve the dispute, the insurance company filed an interpleader action in Federal District Court and paid the entire amount of the proceeds into court. After the pleading stage of the case concluded, the estate filed a motion for judgment on the pleadings arguing that an oral contract was insufficient as a matter of law to overcome NJ’s automatic revocation on divorce statute.
In deciding the motion, the district court framed the issue as follows: “[D]oes a contract contemplated by the statute need to be reduced to writing?” After reviewing relevant caselaw, the district court ultimately held that “[n]either the plain language of the statute nor the legislative history dictate that a ‘contract’ must be in writing to satisfy the exception to the statute’s automatic revocation.”
While revocation upon divorce statutes are meant to protect what might simply be an oversight after dealing with a divorce, there are many situations in which revocation of your former spouse as beneficiary is not the intended outcome. Conversely, it is never a good idea to rely on the default provisions of New Jersey law to remove your former spouse from your estate planning if that is your desired outcome. It is prudent to, with the help of an experienced estate attorney, review all beneficiaries after any significant life event, including marriage and divorce, in order to ensure your intent is carried out after death regardless of your state’s stance on revocation upon divorce.
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