Feb 2020

Return of Estate Assets to Benefit Incapacitated Widow

In an estate case before the Chancery Division of the Superior Court of New Jersey, Brian C. Darreff, Esq., of Earp Cohn PC, successfully argued for the return of funds from a winning lottery ticket, formerly held in a jointly held account between husband and wife. The husband transferred the balance from an account in both his and his wife’s names to an account solely in his name shortly before he died. The husband’s new account was payable on death (POD) to the couple’s adult child. Darreff argued that the account was marital property and was not rightfully the property of the adult child.

In 2005, the husband cashed a winning New Jersey lottery ticket for over a quarter of a million dollars. He deposited this money into a joint account with his wife, where the funds plus interest remained until his unilateral transfer of the lottery account balance to himself. In the years between the lottery winnings and the transfer from the marital account, the husband told others that the account belonged to both him and his wife. He listed the joint account on his wife’s financial disclosure forms. Moreover, the account’s interest income was reported on the couple’s joint federal and state income tax returns.

The wife’s mental health deteriorated before the husband transferred the money from the joint account to one in his name only. She moved to a rehabilitation center. Darreff maintained that after the wife’s move, the husband, unilaterally and without the possibility of his wife’s knowing consent, transferred the money from the joint lottery account with the POD designation. The wife, whose mental health continued to deteriorate, was not capable of understanding these happenings. Darreff became the wife’s attorney after the money was removed from the marital account shortly before the husband died.

After the husband passed away, Darreff intervened in the husband’s estate, which left no assets to the wife, and argued for the return of the money from the adult child who claimed entitlement to the funds pursuant to the POD. Darreff argued that the lottery funds were marital property and the transfer of the funds from the joint account was invalid. Darreff successfully had the court initially freeze the lottery funds.

Darreff relied upon DeVane v. DeVane, where the New Jersey Superior Court held that lottery winnings payable to one spouse as a result of the purchase of a lottery ticket during the marriage is a marital asset. In DeVane, the issue came up when the couple separated, and the wife claimed that she remained entitled to receive a share of lottery winnings installments. The DeVane court eventually ruled that the future lottery distributions were marital assets and subject to equitable distribution.

Next, citing Kothari v. Kothari, Darreff argued that the husband dissipated the assets when he transferred them to an account solely in his name with an adult child as the POD beneficiary. In Kothari, the New Jersey Superior Court framed the ultimate question as “whether the assets were expended by one spouse with the intent of diminishing the other spouse’s share of the marital estate.” Darreff argued that the husband dissipated the jointly held marital assets when he transferred the assets to the second account because when he died, they were unavailable to his widow, “as would be naturally expected by the surviving spouse.”

Darreff also argued that an additional factor in support of return of the funds to the widow is the Medicaid “look-back” rule, which penalizes any gifts or assets transferred within 60 months of the date of a Medicaid benefits application. Under this provision, the widow could have been subject to severe Medicaid consequences by virtue of her late husband’s transfer of lottery winnings from a joint account.

Turning to the remedy that should be applied, Darreff maintained that the appropriate remedy was an order compelling the return of the funds to the widow. Eventually, the court entered an order transferring the funds to a trust for the benefit of the wife. The trust is managed by an independent trustee who pays for the wife’s care and treatment from the trust.