The Illinois Supreme Court says a man had the right to name his children the rightful heirs of his retirement funds, even though his ex-wife contended a court order in place during divorce proceedings should have prevented it.
JoAnn and Donald Smith married in 1974, and according to court documents had several individual and joint financial accounts. Problems arose in July 2013 when Donald was hospitalized and an individual retirement account in his name through The Vanguard Group, for which he had not yet listed a beneficiary, was designated to JoAnn. After leaving the hospital in early August, Donald sought a restraining order and obtained an injunction. He told a court JoAnn denied him access to their home and, while he was hospitalized, moved money from his accounts to hers, according to court documents.
The court granted a temporary injunction, providing the disputed funds were restored. Donald then lived with one of his sons. Each spouse was allowed some living expenses while the remainder of their holdings were closed to transactions. In September 2013, Donald filed for divorce, and that action was consolidated with proceedings over the restraining order.
In March 2014, Donald designated his two sons as the sole beneficiaries of the disputed IRA. In October 2014, Donald and JoAnn agreed to dismiss the divorce and injunction proceedings. He died in March 2015.
Illinois Supreme Court Justice Rita B. Garman
Shortly after, JoAnn learned she was not the IRA beneficiary and sued in Madison County Circuit Court, arguing the change in beneficiary during a period the spouses agreed to primarily freeze their assets constituted fraud.
The judge granted the sons’ motion to dismiss, saying the change only became effective once the divorce proceeding ended, even if Donald filing for the change could’ve been seen as violating injunction terms. The judge denied JoAnn’s motion to reconsider and the the Fifth District Appellate Court affirmed the initial ruling in a divided order. Rather than refile her fraud allegation, JoAnn appealed to the Illinois Supreme Court, which issued a unanimous opinion on Jan. 25 in favor of Donald’s sons.
“Deciding this matter depends on an interpretation of the circuit court’s injunction,” Justice Rita Garman wrote in the opinion. She said the justices needed to “determine what Donald and JoAnn intended when they stipulated to the injunction.”
Garman noted there had been disagreement over who made the initial designation of JoAnn as the IRA beneficiary. While JoAnn said it was Donald, the sons suggested it was JoAnn, since Donald was hospitalized. They also noted about the same time Donald accused her of trying to liquidate a different brokerage account using an invalid power of attorney.
The justices further found “the purpose of the injunction was to keep the spouses’ funds intact and in the accounts within which they had been prior to Donald’s hospitalization.
“Thus, the spouses intended to prohibit only actions that immediately affected the accounts,” Garman wrote. “A beneficiary change does not immediately affect an account, especially an account such as an IRA, for which a beneficiary designation is merely a contingency in case the individual fails to outlive the funds in the account.”
Had Donald died while the injunction remained in place, or while the divorce was unresolved, Garman explained, allocation of the parties’ assets would be resolved by the courts. In such an instance, a judge hearing the case could have determined whatever amount of the IRA deemed equitable “had the dissolution action proceeded to a final judgment.
“An individual does not, however, have the same interest in her spouse’s property at probate that she does at dissolution,” Garman said.
In this case, the justices noted Donald outlived the injunction, but not the funds. As a result, the designation of his sons as beneficiaries should be allowed to stand, and Donald’s Vanguard IRA should be theirs, the justices said.
JoAnn Smith is represented by attorney Phillip H. Hamilton, of the firm of Farrell Hamilton & Julian P.C., of Godfrey.
Donald Smith’s sons, Scott and Jeffrey Smith, are represented by attorneys J. William Lucco and Michael J. Hertz, of the firm of Lucco Brown Threlkeld & Dawson LLP, of Edwardsville.