Before Judges King, Wallace and Fall.
The opinion of the court was delivered by: Fall, J.s.c. (temporarily assigned)
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
On appeal from the Superior Court of New Jersey, Chancery Division, Family Part, Mercer County.
In this post-judgment matrimonial appeal, we examine the obligation of the estate of a deceased parent to contribute toward the college costs of unemancipated children of the marriage in a unique factual circumstance, involving interrelated issues of joinder; federal preemption; the rights of children to the proceeds of an employer-supplied, federally-regulated life insurance policy in accordance with the final judgment of divorce; the competing rights of the designated-beneficiary, surviving widow of decedent, and the unemancipated children to life insurance policy proceeds of a second, privately-purchased, life insurance policy; and the appropriate manner of analyzing the respective rights and obligations of the children, the deceased parent's estate, the surviving parent, and decedent's surviving widow.
The estate of decedent, Wayne Douglas Raynor, appeals from an order directing the estate pay fifty percent (50%) of the college costs of the unemancipated children from the proceeds of the privately-obtained life insurance policy naming decedent's widow, Janet Raynor, as beneficiary. We rule that the proceeds of that life policy can be considered when evaluating the obligation of decedent's estate to contribute to the college costs of the unemancipated children. We also hold that the assets and income of the children must be considered when evaluating the responsibility of the estate to contribute to those college costs, including that portion of the decedent's employer-supplied, federally-regulated life insurance policy proceeds received by the children, as well as any other benefits they received as a result of their father's death.
The decedent, Wayne Douglas Raynor and plaintiff, Rose Raynor (n/k/a Rose Ermi) were married October 13, 1973. Two children were born of the marriage, Wayne Jr., on April 11, 1975, and Brian Raynor, on September 16, 1978. Plaintiff and decedent were divorced on October 20, 1986. In the final judgment of divorce, decedent was ordered to:
[c]ontinue his life insurance policy provided by his employer to which he contributes, with the plaintiff as trustee and the children as irrevocable beneficiaries for so long as his child support obligation continues.
The final judgment is silent concerning the obligation of either party toward the future college costs of the children.
Decedent married Janet Kochie (n/k/a Janet Raynor) in September 1990. At the time of final judgment of divorce, decedent worked at Kepner-Tregoe, Inc., with life insurance coverage equal to the amount of his annual salary. Subsequently, decedent left his employment with Kepner-Tregoe and began working for the United States Post Office, which provided him a life insurance policy through the Federal Employees Group Life Insurance (FEGLI) program. This program was created and is regulated by federal law. See 5 U.S.C. §§ 8701 to 8716. Decedent also purchased a separate, private policy of insurance on his life with Prime America, with a $130,000 death benefit, and he named his wife, Janet Raynor, as sole beneficiary.
During post-judgment litigation in 1993 concerning his obligation to contribute toward the college costs of the child Wayne, Jr., decedent filed a case information statement (CIS) listing his children as the beneficiaries on the FEGLI policy.
On December 10, 1993, decedent was ordered to pay one-half of Wayne, Jr.'s college expenses. Decedent thereafter became ill and fell into arrears on his child support obligation, due to inability to work because of his illness.
On July 27, 1995 decedent, gravely ill, changed the beneficiary designation on his FEGLI life insurance policy, naming his wife, Janet Raynor as beneficiary of seventy-six percent (76%) of the policy proceeds, with the children designated as beneficiaries of twenty-four percent (24%) of the policy proceeds, the latter payable on his death to a trust, created by his last will and testament for the benefit of both children, with Janet Raynor as trustee.
On October 6, 1995, decedent's counsel wrote to plaintiff requesting a reduction in decedent's child support obligation based on the new income he anticipated from disability and asking that he no longer be obligated to pay for one-half of Wayne, Jr.'s college costs. No application was made by decedent for modification of his court-ordered obligations.
On December 5, 1995, decedent died of Black Lung Disease. Two life insurance policies were in effect at the time of decedent's death: (1) the privately-obtained Prime America policy with a death benefit of $130,000 with Janet Raynor as the primary beneficiary; and (2) the FEGLI policy with a face value of $215,700 with Janet Raynor as beneficiary of seventy-six percent (76%) of the proceeds and the remaining twenty-four percent (24%) of the proceeds to be held in trust for the benefit of the children under the terms of his testamentary trust.
The proceeds of the Prime America policy were paid to Janet Raynor in January 1996. Plaintiff contested distribution of the FEGLI policy proceeds in accordance with the beneficiary designations, asserting a claim on behalf of the children to one hundred percent (100%) of the proceeds, pursuant to the terms of the final judgment of divorce. In April 1997, Janet Raynor filed a complaint for declaratory judgment in Federal District Court seeking an order directing that the insurance carrier pay the $215,700 FEGLI policy proceeds in accordance with the beneficiary designations. Rose Raynor, in her answer, counterclaim and cross-claim in the federal suit, requested that the court direct the insurance carrier to pay the entire policy proceeds to the children. The basis of her claim was that decedent wrongfully changed the beneficiary designation on this employer-supplied life policy contrary to the terms of the final judgment. A settlement of the federal litigation was reached in April 1998, resulting in the children receiving $80,000 of the $215,700 policy proceeds.
By letter dated May 29, 1997 counsel for the child Brian requested that his father's estate pay one-half of his college expenses. Brian graduated high school in June 1996 and attended The College of New Jersey as a full-time student commencing in September 1996. In the Fall 1997 Brian transferred to Mercer Community College as a full-time student and returned to The College of New Jersey in September 1998 to complete his undergraduate education. Wayne, Jr. graduated high school in June 1993 and thereafter attended Mercer Community College, receiving an associate's degree in December 1995. In January 1996, Wayne, Jr. enrolled as a full-time student at The College of New Jersey to complete his undergraduate education.
In September 1997, plaintiff moved in the Family Part, seeking an order compelling the Estate of Wayne Douglas Raynor to pay fifty percent (50%) of the college expenses of both Brian and Wayne, Jr. The Estate of Wayne Raynor filed an answer and cross-motion seeking counsel fees. Janet Raynor, as executrix of the estate, certified the estate was insolvent. Plaintiff, in her reply brief, requested that the estate's share of the children's college expenses be paid from the proceeds of the Prime America life insurance policy.
Plaintiff's motion was heard November 21, 1997. The Judge issued an order requiring the Estate of Wayne Raynor to pay fifty percent (50%) of the college expenses of Brian Raynor and Wayne Raynor, Jr., from the proceeds of the Prime America life insurance policy. The FEGLI life insurance policy proceeds were not specifically addressed, as same were still subject to the then-pending proceedings in federal court. That litigation was not settled until April 1998, subsequent to the Family Part order. We note, however, that even under the contested beneficiary designation of the FEGLI policy, the children were entitled to twenty-four (24%) percent of those policy proceeds.
The motion Judge determined the life insurance proceeds from the Prime America policy were part of the estate for the purpose of support for the children, and that the obligation of the decedent to satisfy his child support obligation takes precedence over whatever obligation he may have to his second wife, citing DeCeglia v. Estate of Colletti, 265 N.J. Super. 128, 137 (App. Div. 1993), and Miko v. Miko, 283 N.J. Super. 287, 294 (Law Div. 1994). The Judge also determined Janet Raynor had notice of plaintiff's application in her capacity as executrix of the estate; she had the opportunity to present her arguments in the certification she provided in the motion; and the decision of the court was against the estate, thus, whatever obligations Janet Raynor had would be through her obligations to the estate as executrix.
Finally, the Judge applied the factors in Newburgh v. Arrigo, 88 N.J. 529, 545 (1982), and found while there was no evidence to suggest decedent would have contributed to the children's education had the family remained intact, the estate has the financial ability to pay for fifty percent (50%) of the college expenses of the children. While plaintiff did not supply evidence that Brian was receiving financial aid or grants, the court order "assumes that Brian will apply for financial aid to help defray the cost of college."
On appeal, appellant presents the following arguments for consideration:
"POINT I THE TRIAL COURT ERRED BY ENTERING AN ORDER EFFECTING THE RIGHTS OF AN INDIVIDUAL NOT JOINED AS A PARTY TO THE ACTION."
"POINT II THE TRIAL COURT ERRED IN REQUIRING JANET RAYNOR TO PAY THE COLLEGE EXPENSES FROM THE PRIME AMERICA POLICY WHEN THERE WAS A SECOND POLICY LEFT FOR THE BENEFIT OF THE CHILDREN FOR THE PURPOSE OF SECURING WAYNE'S SUPPORT OBLIGATION."
"POINT III IN MAKING A DETERMINATION THAT THE ESTATE IS LIABLE FOR COLLEGE EXPENSES, THE TRIAL COURT ERRED IN ITS ANALYSIS OF THE FACTORS UNDER NEWBURGH V. ARRIGO."
We consider these arguments in the order raised.
Appellant contends the motion Judge erred by issuing an order affecting the rights of Janet Raynor without requiring her to be joined as a party. Plaintiff maintains Janet Raynor, as executrix of the estate, had notice of the motion, as evidenced by her certification provided in response to plaintiff's motion, and was not beyond the jurisdiction of the court. We agree.
Joinder is governed by R. 4:28-1(a), which provides:
"(a) Persons to be Joined if Feasible. A person who is subject to service of process shall be joined as a party to the action if (1) in the person's absence complete relief cannot be accorded among those already parties, or (2) the person claims an interest in the subject of the action and is so situated that the Disposition of the action in the person's absence may either (i) as a practical matter impair or impede the person's ability to protect that interest or (ii) leave any of the persons already parties subject to a substantial risk of incurring double, multiple, or other inconsistent obligations by reason of the claimed interest. If the person has not been so joined, the court shall order that the person be made a party. If the person should join as a plaintiff but refuses to do so, the persons may be made a defendant." [R. 4:28-1(a).]
Appellant, Janet Raynor, cites Gerhard v. The Travelers Ins. Co., 107 N.J. Super. 414 (Ch. Div. 1969), to support her claim of error. In Gerhard, the dispute was between Travelers Insurance, who paid the proceeds of a life insurance policy to Cornelia Pollard, the named beneficiary, and the daughter of the decedent, who argued she was given the insurance through an inter vivos gift. Id. at 422. The court determined Travelers Insurance was well within its rights in paying the proceeds to Ms. Pollard. Ibid.
Appellant relies on the following language of the court, to support her contention that no order affecting the rights of a beneficiary of an insurance policy can be issued unless the beneficiary is joined as a party to the action:
"Cornelia Pollard (beneficiary) is not a party to this action. Although the amended complaint named Cornelia Pollard as a party defendant, plaintiffs were unable to serve her in New Jersey and, since Mrs. Pollard is not a resident of this state and had no contacts with New Jersey, the attempt to serve her by mail outside the state was without effect. Consequently, the court's decision herein can in no way affect the rights of Mrs. Pollard." [Id. at 420-421.]
Appellant asserts that in all the reported cases involving proceeds of life insurance in the context of matrimonial actions, the beneficiary of the proceeds is a named party. See Della Terza v. Estate of Della Terza, 276 N.J. Super. 46 (App. Div. 1994) (second wife named defendant where case involves distribution of life insurance proceeds to her when final judgment of divorce requires the policy cover the child of the first marriage); Hirko v. Hirko, 166 N.J. Super. 111 (Ch. Div. 1979) (mother of decedent named as defendant where life insurance proceeds sought by first wife to pay alimony arrears); see also Seavey v. Long, 303 N.J. Super. 153 (App. Div. 1997) (decedent's second wife named as defendant in suit by first wife to obtain widow benefits from ex-husband's pension). While it is true, in the cases cited by appellant, the beneficiaries of the proceeds were all joined in the action, this fact alone ...