Case Name: EDGARDO VASCONI, ADMINISTRATOR OF THE ESTATE OF ROBERT VASCONI, PLAINTIFF-APPELLANT, v. THE GUARDIAN LIFE INSURANCE COMPANY OF AMERICA, DEFENDANT AND THIRD-PARTY PLAINTIFF, v. LEAH (VASCONI) WOLF, THIRD-PARTY DEFENDANT-RESPONDENT
Court: Supreme Court of New Jersey
Jurisdiction: New Jersey
Decision Date: 1991-06-03
Citations: 124 N.J. 338
Docket Number: 
Parties: EDGARDO VASCONI, ADMINISTRATOR OF THE ESTATE OF ROBERT VASCONI, PLAINTIFF-APPELLANT, v. THE GUARDIAN LIFE INSURANCE COMPANY OF AMERICA, DEFENDANT AND THIRD-PARTY PLAINTIFF, v. LEAH (VASCONI) WOLF, THIRD-PARTY DEFENDANT-RESPONDENT.
Judges: 
Reporter: New Jersey Reports
Volume: 124
Pages: 338–357

Head Matter:
590 A.2d 1161
EDGARDO VASCONI, ADMINISTRATOR OF THE ESTATE OF ROBERT VASCONI, PLAINTIFF-APPELLANT, v. THE GUARDIAN LIFE INSURANCE COMPANY OF AMERICA, DEFENDANT AND THIRD-PARTY PLAINTIFF, v. LEAH (VASCONI) WOLF, THIRD-PARTY DEFENDANT-RESPONDENT.
Argued November 26, 1990 —
Decided June 3, 1991.
Ronald M. Abramson argued the cause for appellant (Kleeblatt, Galler & Abramson, attorneys).
George T Imperial argued the cause for respondent (Horowitz and Imperial, attorneys).

Opinion:
The opinion of the Court was delivered by
O'HERN, J.
Over the past twenty years, one of the most consistent statistics in America has been the rising divorce rate. In turn, a sad, but familiar, scenario has arisen. Following a bitter divorce, a settlement agreement divides the marital property, with a life insurance policy being awarded to the insured. The policy, however, names the ex-spouse as beneficiary. The insured then remarries, but dies unexpectedly without completing the necessary procedures for changing beneficiaries. The insured's estate claims the policy proceeds. Despite the change of conditions since initiation of the policy, the insurance proceeds are awarded to the ex-spouse. Many states' laws compel just such an inequitable result. [Note, Life Insurance Beneficiaries and Divorce, 65 Tex.L.Rev. 635, 635 (1987) (footnote omitted).]
In this case, the scenario is somewhat different: the policy is a group policy; the insured never remarried; and the former spouses never made specific reference to the insurance policy in their property-settlement agreement, although they did waive generally all interest in each other's estate in the event of death. The issue, however, is essentially the same: whether New Jersey compels an inequitable result that the divorced decedent would have never intended. We think not, and therefore reverse the judgments below, which award the insurance proceeds to the former wife, and remand for a factual hearing on whether the plain meaning of the property-settlement agreement and the probable intent of the decedent are overcome by other evidence of the decedent's intent toward his former wife.
I
Because the case proceeds on summary judgment, we may accept the facts set forth in plaintiff's brief. Robert Vasconi married Leah (Vasconi) Wolf on September 9, 1982. Almost two years later, on August 24, 1984, Robert designated Leah as the beneficiary of his group life-insurance policy maintained by Oakland Auto Parts, Inc., a business of which he was the vice-president, according to the terms of the application. The Guardian Life Insurance Company of America (Guardian) issued the policy.
The record does not disclose the circumstances of that beneficiary designation, although at oral argument we were informed that the marriage was then already on troubled times. Robert's father, Edgardo, states in an affidavit that "[djuring their short-lived marriage, [Robert] suffered and endured nothing but animosity, discord, friction and hostility." Despite that, Robert had designated Leah as the beneficiary of the group life-insurance policy. Less than a year later, their marriage was over. The parties executed a property-settlement agreement on May 6,1985, and obtained a judgment of divorce on the same date. The property-settlement agreement provided for a mutual waiver of alimony and a mutual waiver of all claims or obligations either may have had to the other arising out of the marital relationship. It provided, as well, for the relinquishment of all claims either may have had in the estate of the other party on the latter's death. According to the agreement, those claims were relinquished "whether by way of statutory allowance, distribution of intestacy, or election or take against the other party's will." A separate schedule attached to the agreement distributed certain personal property, specifically awarding to the husband "any personal possessions presently in his custody and control, pension or profit-sharing benefits, bank accounts, stocks, bonds, jewelry, furniture, cash and any other such property" (emphasis added). In addition, the schedule provided that "[a]ny and all other personal property not mentioned in this Agreement which is presently in the possession, ownership, or name of the respective parties as of the daté hereof, will remain in their individual possession and ownership."
Robert died at age thirty-three on December 28, 1986. His father qualified as the administrator of his estate. As administrator he sought payment of the policy proceeds from Guardian, asserting that Leah had relinquished her interest in the proceeds of the policy as well as in all of Robert's assets. He further alleged that the degeneration of Robert's and Leah's relationship had induced alcoholism in Robert and that Robert had died of liver failure caused by his alcoholic condition. He sought to prove that Robert had intended to remove Leah as the beneficiary of the policy but had been unable to "perform the ministerial act" due to his severe alcoholic condition. He also asserted that Robert had believed that the terms of the property settlement effectively revoked Leah's status as beneficiary. He pointed to the fact that Leah had not filed a proof of claim for the life-insurance proceeds until February 1989, more than two years after Robert's death, suggesting that Robert had never discussed the policy with her or informed her that she was the beneficiary.
The Law Division granted summary judgment to Leah on the basis that
[t]here does exist in New Jersey an unbroken line of cases holding that the interest of a designated beneficiary of a life insurance policy is a vested property right payable in the event the beneficiary outlives the insured, subject to divestment only by the insured making a change of beneficiary in the manner provided by the policy contract. A demonstrated intention to change beneficiaries is insufficient if not executed in the manner prescribed in the policy for effecting such a change. Change in the marital relationship between insured and beneficiary has been held insufficient even when accompanied by a separation agreement executed by the first wife and named beneficiary in which she purported to release her husband, the insured, from any claim against him or his estate. [Citations omitted.]
The Appellate Division granted Edgardo's motion for an emergency stay of the judgment, but subsequently affirmed the judgment of the Law Division in an unreported opinion. The court stated that "[w]ell established law dictates that unless the owner of the policy has changed the beneficiary in the manner provided by the policy, the insurer is obligated to pay the proceeds to the named beneficiary." Guardian did not participate in the appeal, having paid the proceeds into court.
We granted Edgardo's petition for certification. 122 N.J. 128, 584 A.2d 204 (1990).
II
For many couples, life insurance is, apart from their home, the largest single estate-planning device that they possess. "Because of a recognition of life insurance as a major estate planning device, in the last ten years investments in life insurance have increased from one and one-half trillion dollars to four and one-half trillion dollars." Note, Life Insurance Beneficiaries and Divorce, supra, 65 Tex.L.Rev. at 635 (footnotes omitted). To place that figure in perspective, we note simply that the proposed annual budget of the United States is nearly one and one-half trillion dollars. Our national debt is now some three trillion dollars. The reasons for the popularity of life insurance are well known. Life insurance "shelters the insured from income taxes during his life, provides an immediate source of funds to meet taxes and expenses of the estate upon death, keeps the insurance proceeds out of the insured's estate, and avoids [some local] estate taxes in the process." Ibid, (footnote omitted). Life insurance rivals the will, then, as the principal modern means of transferring assets to the decedent's estate.
Hence, an examination of how the law of wills would have handled this situation had it been Robert's will that had transferred the proceeds to Leah will aid our analysis. Only gradually has the law of wills recognized that divorce should revoke a will. "At common law, two changes in circumstances revoked a testator's will by implication. For a female, marriage after the creation of a will revoked the will. For a male, marriage and birth of issue after the creation of a will served to revoke the will." Note, Applying the Doctrine of Revocation by Divorce to Life Insurance Policies, 73 Cornell L.Rev. 653, 655 (1988) (footnotes omitted) (suggesting as well that doctrine of revocation by divorce should apply to beneficiary designated in life-insurance policy) (hereinafter Note, Revocation by Divorce). Originally the doctrine of revocation by implication was rebuttable, but courts later "transformed the doctrine into an irrebuttable rule of law by stressing the moral obligations that marriage and birth of issue imposed upon the testator." Id. at 655 n. 11. Some courts, however, "refused to extend revocation by implication to divorce, limiting the doctrine to its common law applications." Id. at 658 (footnote omitted). That was the law in New Jersey until 1978 when the Legislature enacted N.J.S.A. 3A:2A-13 (current version at N.J.S.A. 3B:3-14). At that time, New Jersey joined the overwhelming number of states that have enacted statutes recognizing revocation by divorce. Those statutes adopt the presumption that "in the vast majority of cases the testator's failure to revoke his will subsequent to a divorce is due to neglect, and that to find an implied revocation usually gives effect to a testator's real intentions." Note, Implied Revocation of Wills After Divorce and Property Settlement, 4 Duke B.J. 122, 126 (1954) (hereinafter Note, Implied Revocation).
The transfer of proceeds under an insurance policy is, after all, in almost all respects, similar to the transfer of assets under a will: the transfer is accomplished by a written declaration of the property owner; it is ambulatory (that is, it ambles along during life and can usually be changed at any time); it takes effect on death; and the property with which it deals is included in the decedent's federal taxable estate. The primary difference is that we call it a nonprobate asset.
Just why a nonprobate asset should be treated differently from a probate asset does not yield a satisfying answer. The various legal techniques employed to achieve the distinction, see, for example, Gerhard v. Travelers Insurance Co., 107 N.J.Super. 414, 423, 258 A.2d 724 (Ch.Div.1969) (beneficiary of policy "has a vested right to insurance proceeds, subject to divestment according to the terms of the policy"), appear to have focused on enabling nonprobate transfers of property to achieve will-like results without the formality of wills, with unintended consequences. Would it not be anomalous in the extreme that the device chosen to give the insurance transfer the efficacy of a will serve to bring about a different post-divorce result in the case of the will substitute than the will itself?
No sound reason in policy can be suggested for the different treatment:
In other contexts, courts and legislatures have recognized the functional similarities of wills and life insurance policies and have accorded them the same treatment. Courts now categorize life insurance as a substantial asset in property divisions resulting from divorce. For example, recent decisions have awarded insurance benefits to the non-purchasing spouse as part of a property settlement, child support, or alimony decree. In addition, the Internal Revenue Code acknowledges the will-like quality of life insurance by including the life insurance assets payable to third parties in the decedent's gross estate. These examples demonstrate that insurance assets, like probate assets, are in fact assets of the insured's. They are not the beneficiary's assets because the insured retains the power to eliminate completely the beneficiary's interest. [Note, Uniform Probate Code Section 2-202: A Proposal to Include Life Insurance Assets Within the Augmented Estate, 74 Cornell L.Rev. 511, 525 (1989) (footnotes omitted).]
See also Note, Revocation by Divorce, supra, 73 Cornell L.Rev. at 675-76 (both courts and legislatures should abandon formalistic distinctions between wills and life-insurance policies and apply revocation-by-divorce statutes to both equally).
Is not our intuition and common experience the same? If " '[d]ivorce usually represents a stormy parting, where the last thing one of the parties wishes is to have an earlier will carried out giving everything to a former spouse,' " why should it be thought that insurance proceeds are different? Note, Revocation by Divorce, supra, 73 Cornell L.Rev. at 653-54 (quoting Young, Probate Change, 20 Boston B.J. 6, 10 (Dec. 1976)). Is it not equally true that "in the vast majority of cases the [property owner's] failure to revoke his will [or will substitute] subsequent to a divorce is due to neglect, and that to find an implied revocation usually gives effect to [the owner's] real intentions"? Note, Implied Revocation, supra, 4 Duke B.J. at 126. The truth is that although the reality of human experience is the same,
legal doctrine has not caught up with this great transformation in the practice of succession. Courts have dressed up the will substitutes as lifetime transfers in order to avoid conflict with the probate monopoly theory of wealth transmission on death. This theory is fundamentally mistaken and should be discarded. The law would function better if it admitted that will substitutes are simply "nonprobate wills." [Langbein, supra, 97 Harv.L.Rev. at 1140-41.]
III
We need not decide the broader question today. Suffice it to observe that when spouses divorce and enter into a property-settlement agreement that purports to settle "all questions pertaining to their respective interests in distribution of the marital assets," the proceeds of a life-insurance policy subject to the lifetime control of one spouse should ordinarily be considered as encompassed within the terms of the settlement agreement. Such a settlement agreement and waiver of interest in the property of the deceased spouse should be regarded as presumptively revoking the nonprobate transfer of the insurance proceeds. In Stone v. United States, 272 F.2d 746, 750 (5th Cir.1959), Judge Wisdom posed the simple but conclusive question: was the settlement agreement between the spouses meant "to wipe the slate clean between the parties"? If so, it should be given that effect.
Although contrary precedent exists, see Jones, The Effects of Divorce on Life Insurance, 2 Probate and Property 37 (Sept./Oct. 1988), we believe that in the context of a divorce agreement providing a mutual release of "any claim or right" concerning "all of the items of property, real, personal, and mixed, of any kind, nature or description" of the other spouse, the better precedent states that such a comprehensive agreement is presumably intended to settle all issues, including beneficiary designations, over each other's property. Life Ins. Co. of N. Am. v. Cassidy, 35 Cal. 3d 599, 676 P.2d 1050, 200 Cal.Rptr. 28 (1984).
Life insurance is often used to secure the continued payment of alimony in the event of death. O'Donnell v. O'Donnell, 412 N.W.2d 394, 398 (Minn.Ct.App.1987); Davis v. Davis, 184 N.J. Super. 430, 436, 446 A.2d 540 (App.Div.1982). Family-law practice manuals counsel lawyers on the proper forms to use to provide for the disposition or continued maintenance of insurance policies in the event of divorce. Practicing Law Institute, Life Insurance and Estate Considerations: Forms and Com- merits, Tax Law and Estate Planning Course Handbook Series (1989). Obviously, what can be ordered, as in Davis, supra, can be waived.
Because this case arises on summary judgment, we must assume all the facts that demonstrate the inequity claimed by the husband's representative: that the divorcing parties intended to "wipe the slate clean," Stone, supra, 272 F.2d at 750, and that neither party should have any interest in the property of the other, including insurance proceeds.
If this is the assumed state of facts, there is no reason why relinquishment in terms of "any claim on the other party of any kind whatsoever" should not ordinarily be interpreted to include the life-insurance policies over which the other spouse retained the power to change the beneficiary. O'Brien v. Elder, 250 F.2d 275, 279 (5th Cir.1957) (emphasis omitted). There is no reason why an insurance-beneficiary designation should be sacrosanct at least between the competing beneficiaries. As we have explained, this body of law arose in an entirely different context and for the purpose of effectuating, not invalidating, the intention of the parties. A beneficiary designation must yield to the provisions of a separation agreement expressing an intent contrary to the policy provision. Novern v. John Hancock Mut. Life Ins. Co., 107 N.J.Super. 570, 578, 259 A.2d 504 (Law Div.1969); Duhame v. Duhame, 154 Wis.2d 258, 453 N.W.2d 149 (Ct.App.1989).
In Carr v. Carr, 120 N.J. 336, 576 A.2d 872 (1990), we noted the confluence in policy between principles of probate law and family law and ruled that the familiar principles of the constructive trust should " 'be impressed in any [marital-separation] case where to fail to do so will result in an unjust enrichment.' " Id. at 352, 576 A.2d 872 (quoting D'Ippolito v. Castoro, 51 N.J. 584, 588, 242 A.2d 617 (1968)). In the procedural posture of this case we must assume that it would be unfair and unjust for the former wife to retain this property. The only question is whether the law is powerless to remedy the injustice. We hold that the law is fully capable of effectuating marital distributions "derived from notions of fairness, common decency, and good faith." Carr v. Carr, supra, 120 N.J. at 349, 576 A.2d 872.
Our dissenting members resist this ruling, not because they think it unjust or counterintuitive, but because they believe that the existing rule will be more cost-effective and lead to more predictable results. That would be equally true of any unjust rule of law that is settled. Besides, we do not anticipate a flood of litigation. Any matrimonial lawyer may add an extra provision to the agreement to cover this issue. Nevertheless, our dissenting members insist that our ruling will complicate what they regard as the simple business rule that a change of insurance-beneficiary designation can be accomplished in only one way and that is by filling in the correct forms. Any other holding, they say, would lead to confusion and uncertainty for the insurance industry. But we already know that insurers must comply with court orders to insureds to change beneficiaries. Davis, supra, 184 N.J.Super. at 436, 446 A.2d 540. That does not seem to have burdened the industry.
Nor need insurers be concerned that the rule we make today will place an undue burden on them that will result in "confusion and needless delay" in the payment of insurance proceeds. Strohsahl v. Equitable Life Assurance Soc'y, 71 N.J.Super. 300, 305, 176 A.2d 814 (Ch.Div.1962). Insurers will not be responsible for following the personal relationships of the people they insure. N.J.S.A. 17B:24-5 fully protects the insurer when it pays the policy proceeds to the named beneficiary. See. Hirsch v. Travelers Ins. Co., 153 N.J.Super. 545, 549, 380 A.2d 715 (App.Div.1977) ("[i]f payments have been made in accordance [with the policy's beneficiary designation], the [insurance] companies are absolved from further liability"). In the event of a post-payment dispute, the insurer will simply not be involved, having properly executed its duty under the policy to pay the named beneficiary. Moreover, as the circumstances of this case indicate, if notified of any dispute before payment, the insurer may avoid involvement by paying the proceeds into court.
We recognize that despite the generality of experience, some couples share a lingering affection even after divorce. In that and other circumstances the surviving divorced spouse may overcome the presumption of revocation by establishing to the satisfaction of the court that the parties' intention was to distribute this insurance asset differently from the other assets within the estate. Hence, on remand, the court should focus on the mutual intent of the parties in an effort to determine whether the property-settlement agreement was intended to encompass life insurance. Any inequities occasioned by the non-disclosure of the insurance asset in the marital settlement may be remedied by the familiar principles of matrimonial law. Rosen v. Rosen, 225 N.J.Super. 33, 37, 541 A.2d 716 (App.Div. 1988) ("where there is a showing of fraud or misconduct by a spouse in failing to disclose the true worth of his or her assets, relief may be granted"), certif. denied, 111 N.J. 649, 546 A.2d 558 (1988); see also Carr v. Carr, supra, 120 N.J. at 351, 576 A.2d 872 ("courts' equitable powers are particularly appropriate in the context of domestic relations").
In this case, Edgardo Vasconi sought to establish that the parties did not intend to leave the life-insurance policy proceeds to Leah after the divorce. Leah may convince the court' otherwise. We leave the parties to their proofs and the sound counsel of their attorneys concerning the resolution of that issue on remand.
The judgment of the Appellate Division is reversed and the matter remanded to the Law Division for further proceedings in accordance with this opinion. While the issue is not before us, this matter may properly belong in the Family Part of the Chancery Division. See R. 5:1-2 (civil actions arising out of a "family or family-type relationship" shall be brought in the Family Part).
See Langbein, The Nonprobate Revolution and the Future of the Law of Succession, 97 Harv.L.Rev. 1108 (1984). The author suggests that courts have fashioned well-intended rules, like the "vested interest" rule, to avoid probate requirements and to allow property to pass outside of a decedent's will. But "[t]he odor of legal fiction hangs heavily over the [vested interest] test. We see courts straining to reach right results for wrong reasons and insisting that will-like transfers possess gift-like incidents." Id. at 1128. The author reasons that courts sympathize with people who want to avoid probate, and asks, "Why must they couch their support in fiction? Why insist on finding a [vested interest] that is lacking? Why deny the will-like nature of the will substitutes?" Id. at 1129.