What Happens in Ohio if a Divorcee Dies Before Transferring Property or Assets as Divorce Court Ordered?
How Assets are to be Divided After the Passing of a Spouse During the Divorce Decree
The question was recently posed to me as to what happens if, after a valid and enforceable Decree of Divorce, Dissolution or Legal Separation is filed, one of the spouses or ex-spouses dies before the division of assets can be fully completed. Does the ex-spouse or spouse still retain an interest in an asset that has been released by the Court Order? Two possible scenarios may arise, and each will be addressed separately.
Husband Passes First:
Let’s address the situation when the husband passes first. What about those assets in which wife released or no longer had any interest, yet she remains either a beneficiary or a joint survivorship owner when husband dies? By operation of law, you would think that those assets would pass to her regardless of the Court Decree, but a quick look to Ohio statutory law helps answer this question. With respect to joint and survivorship real property, Ohio Revised Code specifically states that if a husband and wife own real estate as joint tenants with rights of survivorship and the marriage is terminated, the title immediately ceases to become a survivorship tenancy and becomes a tenancy in common.i Thus, husband’s interest, by law, does not pass to his ex-wife. Instead it passes to his heirs or under his last will and testament.
What about assets that had the ex-wife as a beneficiary? Ohio Revised Code section 5815.33 provides guidance. The code defines “beneficiary” as a beneficiary of a life insurance policy, an annuity, a payable on death account, an individual retirement plan, an employer death benefit plan, or another right to death benefits arising under a contract.ii The code states that unless one of two exceptions apply: if a spouse designates the other spouse as beneficiary and if the spouse who made the designation is divorced, obtains a dissolution or has the marriage annulled from the other spouse, the other spouse is then deemed to have predeceased the designating spouse, and the designation is revoked as a result of the termination of marriage.iii The statutory exceptions are if the designation provides otherwise or if the two parties later remarry, then the designation remains. Another exception was created by case law. In a recent Ohio Supreme Court case, the court held that the O.R.C. § 5815.33 does not apply to an insurance policy in existence prior to May 31, 1990, the date the legislation was initially enacted.iv
What happens if husband dies before certain assets, of which ex-wife does have an ownership interest pursuant to the final decree, are transferred to the ex-wife? Case law addresses this dilemma and the theory of constructive trusts. In Bryson v. Maxwell, the court addressed this issue with respect to an insurance policy and stated as follow:
Generally, upon an insured’s death, “the named beneficiary is entitled to the proceeds of the policy.”v However, this Court has recognized that under limited circumstances “an individual with a superior equitable right, by virtue of a divorce decree or separation agreement, may divest the named beneficiary of that right.”vi If, by clear and convincing evidence, a challenge establishes a superseding equitable right to the proceeds, courts are required to impose a constructive trust to “…ensure that the insurance proceeds are paid to those who were to be named beneficiaries of an insurance policy by the terms of a separation agreement embodied in a divorce decree…”vii
Clear and convincing does not mean clear and unequivocal.viii It is an intermediate evidence standard, “more than a mere preponderance, but not to the extent of such certainty as is required beyond a reasonable doubt as in criminal cases.”ix This theory was most recently applied earlier this year when the Ohio Court of Appeals imposed a constructive trust over the proceeds of an ERISA controlled life insurance policy for the benefit of the decedent’s children even though they weren’t named as beneficiaries on the policy. ERISA required that the proceeds be paid to the ex-spouse under ERISA rules, but the court ruled that the ex-spouse had to hold the proceeds in a constructive trust for the deceased’s children.x One could apply the theory of constructive trusts to any asset with beneficiary designations.
This issue was also addressed by the Second Appellate Court, of the Court of Appeals in Montgomery County, Ohio, when the Court of Appeals reversed the trial court, and held that a constructive trust arose by operation of law with regards to STRS funds held by the surviving spouse, and that the ex-spouse had a beneficial interest in those funds. By making this ruling, the court distinguished Cosby v. Cosby, (6 Ohio St. 3d 228, 2002-Ohio-4170). In Cosby, a divorce decree provided that upon the husband’s retirement, the ex-wife would receive 40 percent of the husband’s STRS fund. No provision for survivorship was made. The husband never retired from STRS and continued working until he died. As a result, the surviving spouse qualified as the statutory beneficiary and the ex-wife received nothing. The Supreme Court held that the divorce decree was unambiguous and triggered only by Husband’s retirement. The Supreme Court noted that benefits do not vest until STRS grants retirement and cannot pay benefits until retirement. In this case no beneficiary was designated, so the surviving spouse was statutorily entitled to the benefits. Id.
Although there may be unusual situations which have not yet been addressed by the Ohio legislature or the courts, both have tried to take the appropriate steps to effectuate the terms of the Court Ordered Decrees of Divorce, Dissolution, Separation or Annulment and ensure that the parties’ wishes, contractual agreement and orders of the Court are carried out even if one of them dies before the terms can be fully completed. As you can tell, these situations are complex and involve the interplay of both probate and domestic relations law. If you are involved in trying to determine how assets are to be divided after the passing of a spouse, be sure to contact an experienced divorce or probate attorney conversant with these often “sticky” cases as soon as possible.
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Joseph E. Balmer
Joseph Balmer manages the Probate, Trust and Estate Administration department at Dayton, Ohio, law firm, Holzfaster, Cecil, McKnight & Mues, and has been certified by the Ohio State Bar Association as a specialist in Estate Planning, Trust and Probate Law since 2006.