Opinion
Case No. 01-CV-4105-JPG
October, 2001
MEMORANDUM OPINION AND ORDER
Before the Court are two motions for summary judgment, one filed by Paula D. Cooley (Doc. 38) and one filed by Marcella J. Martin (Doc. 30).
BACKGROUND
The facts of this case are not disputed. James Martin and Marcella Martin were married on June 17, 1972. On February 25, 1984, James Martin applied for an Individual Retirement Annuity with John Hancock Mutual Life Insurance Company ("John Hancock") designating Marcella Martin as beneficiary (annuity number V0040532) ("the Annuity"). James Martin and Marcella Martin were divorced on May 10, 2000. Paragraph eleven of their Marital Settlement Agreement ("the Settlement") provides:
Both parties agree that they shall each have as their sole and absolute property their own retirement pensions and IRA's through John Hancock, and each shall waive any interest in the others past, present or future pension or retirements.
James Martin died on November 20, 2000, without exercising his right to change his beneficiary designation on the Annuity. On December 27, 2000, Marcella Martin applied for the proceeds of the Annuity as the named beneficiary. Paula Cooley, James Martin's only daughter and the Administrator of the Estate of James Martin, also applied for the proceeds.
On April 19, 2001, John Hancock filed its Amended Complaint for Interpleader and Petition for Injunctive relief in this Court, asserting diversity as the basis for federal jurisdiction.
On July 31, 2001, finding that John Hancock was merely a stakeholder and that John Hancock had deposited the balance of the Annuity ($10,159.98) with the Clerk of the Court, the Court dismissed John Hancock as a party in the case. The rival claimants, agreeing to the facts of the case, have both filed motions for summary judgment along with memoranda in support of their motions.
Marcella Martin concedes that James Martin received the rights of ownership to the Annuity under the terms of the Settlement. She argues, however, that her rights as a beneficiary were unaffected by her waiver of interests in paragraph eleven of the Settlement. Moreover, she argues that James Martin had the right to change the beneficiary designation and that his failure to do so is evidence of his intention to keep Marcella Martin as the beneficiary.
On the other hand, Cooley argues that the language of paragraph eleven shows that the parties intended to relinquish any and all interest of any type, including expectancy, in the proceeds of the other party's John Hancock IRA. Therefore, Cooley argues that Marcella Martin's claim to the proceeds of the Annuity is barred by paragraph eleven of the Settlement.
DISCUSSION
Summary judgment is appropriate where "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c); see Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986); Spath v. Hayes Wheels Int'l-Ind., Inc., 211 F.3d 392, 396 (7th Cir. 2000). In this case, there is no factual dispute and no further factual development is necessary.
A single issue of law is posed by this case. The question is whether a former spouse who is the named beneficiary of an individual retirement annuity can collect the proceeds of the account after the death of its owner, notwithstanding a divorce agreement or decree that awarded the Annuity to the owner.
1. Statutory Termination of Marcella Martin's Interest.
Under Illinois law, a retirement plan in the form of an individual retirement account or an individual retirement annuity, is treated as a trust created or organized for the exclusive benefit of an individual or his or her beneficiaries. See 735 ILCS 5/12-1006 (providing that certain retirement plans, including individual retirement accounts and individual retirement annuities, are "conclusively presumed to be spendthrift trust[s]"); In re Estate of Davis, 215 Ill. App.3d 998, 589 N.E.2d 154 (Ill.App. 2nd Dist. 1992); First National Bank of Blue Island v. Philp's Estate, 106 Ill. App.3d 360, 361, 436 N.E.2d 15, 16, 62 Ill.Dec. 433, 434 (Ill.App. 1st Dist. 1982); both cases citing 26 U.S.C. § 408(a) (providing that "the term `individual retirement account' means a trust created or organized in the United States for the exclusive benefit of an individual or his beneficiaries.")
In In re Estate of Davis, the issue in dispute involved the proceeds of a decedent's individual retirement account. Davis, 589 N.E.2d at 156. The proceeds of the IRA were claimed by the decedent's ex-spouse. Id. The ex-spouse was originally named the beneficiary of the IRA. Id. at 160. In a subsequent divorce proceeding, the IRA was specifically awarded to the decedent. Id. at 156. The original beneficiary designation, however, remained unchanged. Id. In Davis, the court held that the ex-spouse was not entitled to the IRA. Id The Court relied on Illinois' "Trusts and Dissolutions of Marriage Act," which applies to revocable trusts. Id. at 160-61; 760 ILCS 35/1 (2001). Section 1(a) of the Act provides:
Unless the governing instrument or the judgment of judicial termination of marriage expressly provides otherwise, judicial termination of the marriage of the settlor of a trust revokes every provision which is revocable by the settlor pertaining to the settlor's former spouse in a trust instrument or amendment thereto executed by the settlor before the entry of the judgment of judicial termination of the settlor's marriage, and any such trust shall be administered and construed as if the settlor's former spouse had died upon entry of the judgment of judicial termination of the settlor's marriage.760 ILCS 35/1(a) (2001).
Although neither party has cited to In re Estate of Davis or the Trusts and Dissolutions of Marriage Act, no other Illinois appellate court has so directly addressed the issue that confronts this Court in the instant case. The Court finds that the Davis rationale applies to this case. Therefore, in this case, the Court holds that James Martin's original designation of Marcella Martin as the beneficiary of the Annuity was automatically revoked by operation of the Trusts and Dissolutions of Marriage Act upon the divorce of James and Marcella Martin. See Davis, 589 N.E.2d at 160. Despite this automatic revocation, James could have redesignated Marcella as the beneficiary after their divorce. His failure to do so must be viewed as a demonstration of his intent not to renew that beneficiary designation. See id. at 161.
2. Termination of Marcella Martin's Interest by the Marital Settlement Agreement.
Even if Marcella Martin's interest as a contingent beneficiary was not automatically revoked by statute, the waiver provision in the Settlement waived Marcella Martin's interest.
To determine the effect of a waiver, two factors must be considered: (1) whether the asset in dispute was specifically listed as a marital asset and awarded to a spouse; and (2) whether the waiver provision contained in the settlement agreement specifically states that the parties are waiving any expectancy or beneficial interest in that asset. In re Marriage of Velasquez, 295 Ill. App.3d 350, 692 N.E.2d 841, 229 Ill.Dec. 852 (Ill.App. 3rd Dist. 1998).
Although the Illinois Courts have required specific language waiving future contingent interests, they do not require such a waiver to include any particular magic wording. For instance, in Principal Mutual Life Insurance Co. v. Juntunen, 189 Ill. App.3d 224, 545 N.E.2d 224, 136 Ill.Dec. 700 (Ill.App. 1st Dist. 1989), the issue was whether the language of a divorce settlement waived the future contingent interest of the decedent's former spouse in the decedent's life insurance policy. In Juntunen, the settlement agreement provided, "Each of the parties hereby releases and/or waives any interest, beneficial or otherwise, which he or she may have acquired in or to life insurance policy(ies) owned by the other." Juntunen, 545 N.E.2d at 225.
The former spouse in Juntunen argued that she had not waived her future contingent interest as a beneficiary but only her interests that had vested at the time of the waiver. Id. The Court disagreed, finding that the waiver was broad enough to cover all of the former spouse's interests. Id.
Juntunen can be compared to Deida v. Murphy, 271 Ill. App.3d 296, 647 N.E.2d 1109, 207 Ill.Dec. 616 (Ill.App. 1st Dist. 1995). Deida presented similar facts and posed the same legal issue as Juntunen. The Court, however, came to the opposite conclusion. The difference was that the waiver in Deida was more general in nature. It provided:
[E]xcept as herein provided, both the husband and the wife forever waive, release and quit claim to the other all rights to inheritance, and any and all other rights, including property rights, which either now has or may hereafter have as husband and wife, widower, widow or otherwise by reason of the marital relations now existing between the parties hereto by any present or future law of any state, of the U.S., or of any country, in and to or against the property of the other party, or his or her estate, whether now or hereafter acquired.
Deida, 647 N.E.2d at 1109.
The distinguishing factor between Deida and this case is that in this case the waiver specifically refers to James Martin's John Hancock IRA. Moreover, the waiver in this case not only specifically refers to the IRA, but also provides that each party waives their "interest in the others past, present or future pension or retirements."
Marcella Martin simply focuses on the absence from the Settlement of the word "beneficial." She fails to explain how the language of paragraph eleven of the Settlement can be logically construed in a way that does not include beneficial interests.
The waiver in this case is more like the waiver in Juntunen than the waiver in Deida. The most reasonable interpretation of paragraph eleven is that each party intended to relinquish any and all interest of any type in the proceeds of the other's John Hancock IRA. No Illinois case indicates that the mere failure of the parties to include the word "beneficial" is determinative. Finally, Marcella Martin argues that James Martin's failure to change the designation is evidence of his intent to keep her as the beneficiary. However, James Martin's failure to change the beneficiary is as easily ascribed to a belief that the proceeds of the Annuity would pass to his only daughter through intestate succession or through a residuary clause of a will. See Juntunen, 545 N.E.2d at 226.
CONCLUSION
For the reasons stated above the Court holds that Paula D. Cooley, as Administrator of the Estate of James C. Martin, is entitled to the proceeds of the John Hancock Individual Retirement Annuity (annuity number V0040532).
Therefore, Paula Cooley's motion for summary judgment is GRANTED.
Marcella Martin's motion for summary judgment is DENIED.
Because this summary judgment order resolves all claims by all the parties, IT IS ORDERED that the Clerk shall terminate this case.
IT IS FURTHER ORDERED that the Clerk shall withdraw all sums from the interest-bearing account established for this case on May 1, 2001 when the plaintiff, John Hancock Insurance Company, deposited TEN THOUSAND ONE HUNDRED AND FIFTY-NINE DOLLARS AND NINETY-EIGHT CENTS ($10,159.98). From the sum withdrawn, the Clerk shall assess and collect the registry fee assessment using the variable fee rate schedule set forth in 56 FR 56356-01. The clerk shall then distribute the remaining amount to PAULA D. COOLEY as Administrator of the Estate of James C. Martin. The clerk shall send payment to Ms. Cooley's attorney, Richard O. Hart, Hart Hart, 602 West Public Square, Post Office Box 937, Benton, Illinois 62812.
IT IS SO ORDERED.