Automatic Orders

PRACTICE IN NEW YORK UNDER THE AUTOMATIC ORDERS

by Barton R. Resnicoff

In 2009, the legislature added a requirement that Automatic Orders were required to be filed and served when a matrimonial action was commenced.  How were these Automatic Order going to be enforced?  Just recently, in the first appellate decision, the Second Department gave us an idea of what to expect when there is a violation of the Automatic Orders, see Reliastar Life Insurance Company of New York v. Cristando and Lozada.1 What are they?  Why is it important?  How did we get to this point?  And, finally, what should the practitioner do going forward?  As Reliastar dealt with life insurance proceeds, this article will deal primarily with those issues.

The real need for stays on dissipation of assets got its start when New York became an Equitable Distribution state in 1980.  Before that, as a titled state, however an asset was titled governed it disposition in a divorce, with the exception of impressing a constructive trust, which was rarely successful.  If the marital residence or other asset was owned by one party or the other, that was it.  In reality, the Courts usually could only deal with exclusive possession(or sale, if jointly owned)based upon DRL §234, which provides that

In any action for divorce, for a separation, for an annulment or to declare the nullity of a void marriage, the court may(1)determine any question as to the title to property arising between the parties, and(2)make such direction, between the parties, concerning the possession of property, as in the court’s discretion justice requires having regard to the circumstances of the case and of the respective parties. Such direction may be made in the final judgment, or by one or more orders from time to time before or subsequent to final judgment, or by both such order or orders and final judgment.

There were exceptions, but DRL §234 was primarily used to deal with issues of exclusive possession see Schwartz v. Schwartz2 for the marital residence or other items of property, like exclusive use of a motor vehicle could, see DiMascio v. DiMascio3.  Occasionally, pre-equitable distribution, there would be a need to freeze an asset or safe deposit box, primarily for disclosure purposes.  But the need for stays became more common when equitable distribution became the law.

When that need initially occurred, practioners were forced, in New York, to be creative, as initially there was no requirement to maintain the status quo, which lead to applications by Order to Show Cause to stay the dissipation of assets, the leading case of Froelich-Switzer v. Switzer4, held that

The interests of justice, in an equitable distribution case, require that the assets of both parties not be significantly disturbed or rearranged by being transferred, relocated or altered, by loans, liens or otherwise, until there has been a final determination by the court as to what the assets are and the rights of the respective parties thereto in terms of ownership and possession.

Obviously, a party against whom a claim for equitable distribution and/or maintenance is made may seek to minimize the assets possessed, by way of disposition or otherwise, so as to affect the court's decision. This is so since it is in the interest of the spouse resisting a claim for equitable distribution to show the least amount of personal assets possible. Similarly, the interest of the party seeking equitable distribution is to minimize its own personal assets.

Accordingly, with the emergence of equitable distribution in New York’s legal firmament, the financial status quo of both parties, as it existed at the time of the commencement of the action, should be maintained until and unless a court has had a proper and fair opportunity to appraise the evidence presented.

Apparently, the State of Michigan and allegedly, other jurisdictions, which do have equitable distribution, have followed the practice of restraining any abnormal disposition of the parties’ assets except in the course of regular business and personal affairs, unless prior permission be obtained from the court. This approach is logical and persuasive.  107 NYS2d 814-5, 436 NYS 2d 124-5

There were other cases dealing with this issue, see DeKwaitowski v. DeKwaitowski5 and Annexstein v. Annexstein6).  Under Liebowits v. Liebowits7, the procedure was formalize under DRL §234, when it was held that

Section 234 of the Domestic Relations Law provides the authority for the issuance of an order restraining disposition of marital assets during the pendency of a divorce action.  Therefore, compliance with the formalities and jurisprudential requirements of CPLR article 63 relative to preliminary injunctions is not a prerequisite to an order of restraint.  93 AD2d 535-6, 462 NYS2d 470

With Liebowits, New York practitioners, whenever there was a fear of transfers or a dissipation of assets, almost made it automatic to start a divorce action with a request for a stay transferring assets; and if any motion was made at the time of commencement, those forms of relief were usually added to a request for Temporary Restraining Orders(TRO)against third parties as a form of relief.

In 2009, that changed when DRL §236B(2)(b)was added; which required that

…the plaintiff shall cause to be served upon the defendant, simultaneous with the service of the summons, a copy of the automatic orders set forth in this paragraph.  The automatic orders shall be binding…upon the defendant immediately upon the service of the automatic orders with the summons.  The automatic orders shall remain in full force and effect during the pendency of the action, unless terminated, modified or amended by further order of the court upon motion of either of the parties or upon written agreement between the parties duly executed and acknowledged.  The automatic orders are as follows:

(1) Neither party shall sell, transfer, encumber, conceal, assign, remove or in any way dispose of, without the consent of the other party in writing, or by order of the court, any property(including, but not limited to, real estate, personal property, cash accounts, stocks, mutual funds, bank accounts, cars and boats)individually or jointly held by the parties, except in the usual course of business, for customary and usual household expenses or for reasonable attorney’s fees in connection with this action.

(2) Neither party shall sell, transfer, encumber, conceal, assign, remove or in any way dispose of any tax deferred funds, stocks or other assets held in any individual retirement accounts, 401K accounts, profit sharing plans, Keogh accounts, or any other pension or retirement account, and the parties shall further refrain applying for or requesting the payment of retirement benefits or annuity payments of any kind, without the consent of the other party, or upon further order of the court; except that any party who is already in pay status may continue to receive such payments thereunder.

(3) Neither party shall incur unreasonable debts hereafter, including, but not limited to further borrowing against any credit line secured by the family residence, further encumbering any assets, or unreasonably using credit cards or cash advances, except in the usual course of business or for customary or usual household expenses, or for reasonable attorney’s fees in connection with this action.

(4) Neither party shall cause the other party or the children of the marriage to be removed from any existing medical, hospital and dental insurance coverage, and each party shall maintain the existing medical, hospital and dental insurance coverage in full force and effect.

(5) Neither party shall change the beneficiaries of any existing life insurance policies, and each party shall maintain the existing life insurance, automobile insurance, homeowners and renters insurance policies in full force and effect.

The need for the Court to issue a stay against a party and/or the holder of a specific asset should no longer exist, or should it?  Consider a divorce I was retained in; where the wife(my client)reported to me that her husband had a drinking problem(he was an alcoholic)and was spending unreasonable amounts at bars and strip joints, with copies of the banking statements to confirm this.  Would this be an appropriate case to request such stays beyond the existence of the Automatic Orders?  Both I and my client thought so; the judge did not.  While the action was pending and even after it was settled, the husband continued to feed his addiction with inappropriate and unreasonable withdrawals.  I still think that the judge should have granted the stays requested against the financial institutions.  In other words, the Automatic Orders should not preclude further actions, see CPLR 6301.

But that is another subject to be dealt with at another time.  Let’s address the issues in Reliastar.  The husband(my client)had commenced a divorce action against his wife, filing and serving the Automatic Orders.  While the divorce was pending, the wife developed stomach cancer and it reached a terminal stage; the husband’s position was that her goal was to do everything in her power, whether in compliance with Court Orders or not, to see to it that her husband got little or nothing from the marriage.  After her motion for an expedited trial(the Note of Issue had been filed months before)was granted but before the trial commenced, the wife had a new will drafted disinheriting the husband and giving her entire estate to her brother; transferred to her brother her one half interest in a separate property house she owned jointly with her brother without consideration; and changed the beneficiary on her life insurance policy from her husband to her brother, all without advising the husband or the divorce Court and, obviously not requesting permission as required by the Automatic Orders.  While the parties had two young daughters, they were not made the beneficiaries.  While all of this was done, it was not disclosed at the trial that commenced a few weeks later.

At the beginning of the trial, the husband proceeded to inquest on the issue of grounds(the action was commenced pre-no fault)based upon constructive abandonment; the trial judge indicated that he "will" grant the divorce; and the trial on the other issues continued and concluded.  Less than a month after the end of the trial; before post trial submissions and, therefore, a decision, the wife passed away.  Whether or not there was a divorce was the subject of another appeal, see Cristando v. Lozada8; but those issues are really not relevant here.

Both the husband and the brother submitted a written claim for the life insurance proceeds; the life insurance company commenced a stakeholder proceeding under CPLR 1006(f) for the Court to determine who was entitled to the proceeds, with both the husband and the brother requesting the funds.  Supreme Court awarded those proceeds to the husband, finding a violation of the Automatic Orders.  The brother appealed.

Key to the brother’s position was that the wife owned the life insurance policy(she did); and that the life insurance company must, based upon that contract, deliver the proceeds to him.  Key to the husband’s position was that the Automatic Orders were clearly and intentionally violated; and that the Courts must enforce them and award the proceeds to Robert.

The Automatic Orders are very clear and unambiguous, the wife was precluded from changing the beneficiary of the life insurance policy at the time she did so; because of that, the husband’s position is that the change of beneficiary was void and should not be honored.  The husband’s position was to have any other result would have made the Automatic Orders useless.

There was very little case law to present on this subject, and what did exist were all trial Court decisions.  When the wife changed the beneficiary designation on the policy in question, she was in violation of the fifth paragraph of the Automatic Orders, doing exactly what the law was meant to prevent.  What effect did these Automatic Orders have on the life insurance policy?  One of the trial Court decisions, Sykes v. Sykes9, which considered this issue and noted that

Justice Ellen Gesmer held in PS v. RO, 31 Misc3d 373, 916 NYS2d 755(Sup. Ct., NY Co., 2011), that the promulgation of DRL §236(B)(2)(b) as a court rule in 22 NYCRR 202.16-a constitutes a "lawful mandate of the court" and that the legislative history of DRL §236(B)(2)(b) clarifies "that the Legislature intended that a violation of the automatic orders would be redressed by the same remedies available for violations of any order signed by a judge." Id. at 376, 916 NYS2d 755….

…to adjudge a party in civil contempt, a court must conclusively determine three things: 1) the existence of a lawful order expressing an unequivocal mandate of which the party had knowledge; 2) the disobedience of such order; and 3) that the rights and remedies of a party to the action were prejudiced by the violation of the order.  Matter of McCormick v. Axelrod, 59 NY2d 574, 583, 466 NYS2d 279, 453 NE2d 508(1983); Judiciary Law §753(A)(3)….it has been established that the automatic orders are a lawful mandate of the court.  See PS v. RO, 31 Misc3d at 376, 916 NYS2d 755….  Plaintiff…had actual or constructive knowledge of the language of the automatic orders contained within the summons.  Finally…plaintiff breached the terms of the automatic orders…the only issues remaining…is whether plaintiff’s breach of the automatic orders prejudiced defendant’s rights in this…action(see Judiciary Law §753[A]; McCormick, 59 NY2d at 583, 466 NYS2d 279, 453 NE2d 508["prejudice to the right of a party to the litigation must be demonstrated"]) and whether alternative remedies to a finding of contempt are unavailable or would be ineffectual.  See Farkas v. Farkas, 201 AD2d 440, 607 NYS2d 945(1st Dept.. 1994).

…In the Assembly’s Memorandum in Support of Legislation, it is stated that the automatic orders are needed "to prevent both parties from dissipating assets, incurring unreasonable debts, or removing a party or the children from health or life insurance policies."  Mem. in Support of 2009 NY Assembly Bill A2574, Bill Jacket, L. 2009, ch. 72; see also Introducer’s Mem. in Support, 2009 N.Y. Senate Bill S2970….

Dissipation has a specialized meaning within the context of matrimonial law.  It has often been characterized as having a nefarious or devious undertone carrying the implication that the party transferring the funds did so with the intent of impeding the economic rights of the other spouse…35 Misc3d 595, 940 NYS2d 477-8

The wife, knowing that she was terminally ill, acted to impede the husband’s rights as the primary beneficiary of the policy and made a gift causa mortis to her brother.  There is an alternative remedy to a finding of contempt, i.e., to declare the change in beneficiary void.  Sykes is not about punishing someone for contempt, per se, but to make the parties whole based upon the law, including the Automatic Orders.  As was also noted in PS v. RO10,

…the court rules constitute lawful mandates of the court.  Furthermore, the legislative history of Domestic Relations Law Section 236(B)(2)(b) makes clear that the legislature intended that a violation of the automatic orders would be redressed by the same remedies available for violations of any order signed by a judge.  31 Misc3d 375, 916 NYS 2d 758

It should be clear that the wife, by changing the beneficiary on the policy did exactly what the legislature wished to prevent.  The key was not a finding of contempt11, but to prevent the damage by making sure that the husband’s economic rights were protected.  The only way to do that was to void the change of beneficiary and award the proceeds from the policy to him.

Liebman v. Liebman12, and SG v. PG13, specifically directed the life insurance not be changed, based upon DRL §236B(2)(b)(5), and be maintained during the action.  In a somewhat different situation, Estate of George Bowens, Jr.14, lacked a specific prohibition from the change of death benefit to a pension, with neither of the parties to the divorce prosecuting the action for about three years, did not prohibit the change of beneficiary; here, both husband and wife worked very hard to litigate the divorce and the Automatic Orders specifically prohibited what the wife did and was clearly distinguishable.

The brother’s claim that the husband did not have standing to challenge the change of beneficiary was without merit, see Teachers Ins. and Annuity Ass’n v. Tedeschi15, as it was held there that

Farrell contends that, as a third-party beneficiary, she was owed a fiduciary duty by plaintiffs.  We disagree.  Farrell failed to prove that she had enforceable rights thereunder(see City of Amsterdam v. Lam, 270 AD2d 603, 605, 703 NYS2d 606[2000], lv. denied 95 NY 2d 757, 713 NYS2d 1, 734 NE2d 1212[2000]; Leavitt-Berner Tanning Corp. v. American Home Assur. Co., 129 AD2d 199, 203, 516 NYS2d 992[1987], lv. denied 70 NY2d 609, 522 NYS2d 109, 516 NE2d 1222[1987]) by demonstrating that the contracting parties, here plaintiffs and decedent, intended to bestow a benefit upon her "more than merely incidental to the benefits afforded them and which evince an intent to permit enforcement by[her]"(Dubroff v. Evergreen Bank, Natl.  Assn., 265 AD2d 644, 645, 696 NYS2d 560 [1999]).  3 AD3d 673, 771 NYS2d 240

In Reliastar, there was an intentional violation of an Order of the Court; raising, at a minimum, a fiduciary duty as between husband and wife, concerning the policy and easily distinguished.

One issue considered was "should the change in beneficiary submitted by the wife, as part of her contract with Reliastar, take precedent over her obligations under the Automatic Orders."  There were no appellate decisions on all fours on this issue, but the case law indicated that the contract should give way to the directions of the Automatic Orders.

What effect did the Automatic Orders have on the contract between the wife and Reliastar?  Can an Order in another action directly affect that contract?  The brother cited W.W.W. Associates Inc. v. Giacontrieri16, but as it did not deal with whether or not there was an outside impediment to compliance with that contract, merely whether or not the contract was clear and unambiguous on its face, did not apply, as the Automatic Orders were such an impediment.  Rosen v. Equitable Life Assur. Socy.17, held that an outside impediment should affect the contract, as the insurance company sought an Order of interpleader to include an alternate beneficiary of annuities under CPA §287, the predecessor of CPLR 1006, the basis of Reliastar’s application here.  Both the decedent’s wife and brother had claimed the proceeds from the policies.  The Court held that the insurance company acted appropriately in letting the Courts decide who was entitled to policy proceeds, without regard to whether or not it was part of the contract.

Even further proof that an outside force can affect or prevent a change in beneficiary is Zies v. New York Life Ins. Co.18, when it held that

If a contract was made for valuable consideration to take out a certificate…and the consideration fully furnished by the beneficiary, the member would not be allowed to destroy the rights… by…naming a new beneficiary.  237 AD 369, 261 NYS2d 711

Zies permits consideration outside the insurance policy to prevent a change in beneficiary when appropriate.  When the policy was taken out, the consideration for the husband to be named as beneficiary was the marriage between him and the wife; the Automatic Orders merely confirmed this formally, justifying the outcome.

Also raised was Smith v. Prudential Life Ins. Co. of America19, there the deficiency was due to an improper change of beneficiary; confirming that outside forces can prevent complying with a change in beneficiary.  Here, it was more that the wife sought to change a beneficiary by violating a Court Order.  The Court did not require the additional step of the husband seeking a constructive trust against the brother on the proceeds, see Augustine v. Szwed20.

Bell v. Roosevelt Sav. Bank21, as close to on all fours as possible, prior to the Automatic Orders being enacted, a Stay was granted in a divorce action against the wife and her mother from withdrawing funds from a bank account at Roosevelt Savings Bank.  The bank was not stayed, but was made aware of the stay against the account holders; when the wife and mother brought an action to direct that their contract rights with the bank should be enforced by the bank and withdrawals permitted, the Court held that

If the Bank was so concerned about its rights and responsibility and those of its depositors it should have commenced an interpleader action.  It failed to do so.  Thus it will require a final resolution of this action(Index # 45166/93)to determine if the Bank in fact acted so improperly as to result in liability and if liable the extent of damages.

In so far as plaintiff’s[sic]seek summary judgment on this action there are questions of fact as concerns this account and the rules applicable to it.  The court cannot grant plaintiffs’ application.

Furthermore, to grant plaintiffs’ application at this juncture would be equivalent to granting plaintiffs permission to violate the order of this court(Index # 17932/92)which prevented them, individually, from removing the funds in question.  The court cannot sanction this requested relief.  160 Misc2d 731, 611 NYS2d 89

In other words, the Court, in Bell, would not let the plaintiffs violate a Court Order; similar to what the Court did in Reliastar by voiding the wife’s violation of a Court Order.  Also relevant is Pass v. Kramer22, which held that

The granting of an order of interpleader does not turn the action into a suit in equity, but is a statutory remedy designed for use in common law courts and actions, to the application of which certain rules derived from the practice of the equity courts have been adapted. Englander v. Fleck, 51 Misc 567, 101 NYS 125; Nolan v. Smith, 193 Misc 877, 85 NYS2d 380.  160 NYS2d 415

If principles of equity are considered, as was noted in Bell, the Court did not permit the brother to benefit from a violation of a Court Order.  In reality, in an interpleader action such as in Reliastar, the aspects of equity are important, which was further confirmed in Mann v. John Hancock Mut. Life Ins. Co23, which held that

The defendant Anna for the first time appeared in the action by filing an answer and alleging, inter alia, that the plaintiff ‘in the exercise of duress, undue influence and other acts, conduct and representation upon the insured Samuel W. Mann, caused the said Samuel W. Mann, to execute a change of beneficiary, nominating the said plaintiff Joseph H. Mann, Jr., to be the beneficiary of said policy and that said alleged execution, purporting to change the beneficiaries as aforesaid was without force and effect and said plaintiff is not entitled to have or receive any part of the proceeds of said policy payable by said defendant and interpleading plaintiff upon the death of said Samuel W. Mann.’  With the pleadings in both actions in this posture, the insurance company moved, pursuant to Section 285 of the Civil Practice Act, to deposit the amount due in court and thereafter be discharged of any and all liability as to all parties.  The plaintiff herein filed opposing affidavits and moved, before the same Special Term, for summary judgment against the insurance company.  The insurance company filed an answering affidavit, the basis of which was its request to pay the money into court and be discharged.  There were no affidavits by the defendant Anna on this motion for summary judgment.

From this summary of the procedural aspects of the litigation, when the motions came before the Special Term the court granted summary judgment against the insurance company and struck out Anna’s answer in which duress was alleged.  The court denied the application of the insurance company to pay the proceeds into court and for discharge.

We feel the matter will be in better perspective if the application of the insurance company to pay the proceeds of the life insurance into court is granted and it be discharged and we so order, Rosen v. Equitable Life Assurance Society, 289 NY 333, 45 NE2d 899.  245 NYS2d 434-5

The issues were also handled in Eightway Corp. v. V. Ponte & Sons, Inc.24, when it noted that

Plaintiff’s predecessor in title executed a mortgage consolidation agreement with the defendant bank containing provisions requiring the mortgagor to deposit monies in escrow with the bank which were to be applied to monthly real estate taxes and other assessments.  Said mortgage was assumed by plaintiff.  Plaintiff subsequently transferred the mortgaged property to defendant V. Ponte & Sons, Inc.  Inadvertently, at the closing, no adjustment was made with regard to the escrow fund held by the bank.  Shortly thereafter, the defendant bank paid quarterly real estate taxes in connection with the subject property utilizing monies deposited in the escrow fund by or in behalf of plaintiff pursuant to the terms of the mortgage instrument.  Plaintiff then brought an action against the bank and plaintiff's grantee, V. Ponte & Sons, Inc., to recover said monies.

The defendant bank is not liable to the plaintiff(see Valerio v. College Point Savings Bank, 48 Misc2d 91, 92, 264 NYS2d 343, 344; Howard v. Bellinger, 200 Misc 1082, 1085, 109 NYS2d 365, 367).  Defendant Ponte, however, was unjustly enriched by the aforementioned payment of real estate taxes which the bank made subsequent to the subject premises being transferred to Ponte.  Accordingly, Ponte must make restitution to the plaintiff as directed by the court below(see Miller v. Schloss, 218 NY 400, 407, 113 NE 337, 339).  99 Misc2d 989-90, 420 NYS2d 836

The appropriate principles that should be applied resulted in denying the brother’s request relief and justified granting the husband’s request, see Paramount Film Distributing Corp. v. State25, when it held that

…in any action for unjust enrichment or restitution is whether it is against equity and good conscience to permit the defendant to retain what is sought to be recovered(Grombach Prods. v. Waring, 293 NY 609, 615, 59 NE2d 425, 428; American Sur. Co. v. Conner, 251 NY 1, 8-11, 166 NE 783, 785, 787; Miller v. Schloss, 218 NY 400, 407, 113 N.E. 337, 339; Schank v. Schuchman, 212 NY 352, 106 NE 127; Restatement, Restitution, §1; 50 NYJur, Restitution, §§1, 3).  Such a claim is undoubtedly equitable and depends upon broad considerations of equity and justice(50 NYJur, Restitutions, §7).  Generally, courts will look to see if a benefit has been conferred on the defendant under mistake of fact or law, if the benefit still remains with the defendant, if there has been otherwise a change of position by the defendant… 30 NY2d 421, 334 NYS2d 393, 285 NE2d 698

Interestingly, in Reliastar, the brother attempted to continue to litigate his sister’s divorce, an attempt that was rejected as the trial Court noted

Edwin Lorenzo[sic]does not have standing to raise such an issue because he was not a party to the matrimonial proceeding.  Further, upon death of a party, the matrimonial action terminates.

The brother also claimed that a term life insurance policy wasn’t really an asset concerning the rights of a beneficiary, but it was pointed out that a life insurance policy is a contract, with rights and obligations.  The owner has an affirmative obligation to make premium payments; the insurance company, upon the death, has an obligation to pay the death benefit.  Whether the husband only had an inchoate right until the wife’s passing is beside the point.  The legislature, in directing the Automatic Orders, set forth the law and the obligation of parties to divorce litigation, that beneficiaries of life insurance not be changed.  The wife violated that.  The Courts recognized that violation and enforced the law.  In fact, Zies v. New York Life Ins. Co., supra, is justification that the Automatic Orders should govern what the wife was and was not able to do with this life insurance policy.

The brother also cited Augustine v. Szwed26, where a husband, after signing a separation agreement where he agreed to maintain certain life insurance policies with the wife as beneficiary; after the separation, he went to live with his sister, whom he changed the beneficiary on some of those policies; and the wife, after the husband died, sued the sister to impress a constructive trust, which claim was held to be justified, when it was held that

A constructive trustee may acquire property wrongfully, thus holding it adversely to the beneficiary’s interest from the date of acquisition, or he may wrongfully withhold property which he has rightfully acquired from the lawful beneficiary.  In either case, the cause of action accrues when the acts occur upon which the claim of constructive trust is predicated, the wrongful withholding(Scheuer v. Scheuer, supra;27; Lammer v. Stoddard, 103 NY 672, 9 NE 328; Pagano v. Pagano, 207 Misc 474, 139 NYS2d 219; affd 2 AD2d 756, 153 NYS2d 722; Scott on Trusts, §481.1; Bogert on Trusts(2d ed.), §753).  77 AD2d 301, 432 NYS2d 965

So Augustine specifically noted that there can be something that will prevent the insured, directly or indirectly, from effectuating a change in beneficiary.

The brother also cited In re Bobula’s Estate28, 51 Misc2d 376, 273 NYS2d 165 (Surr.Ct., Erie Co., 1966), but was distinguished for a number of reasons, as it dealt with whether or not the insured benefited from murdering the beneficiary of the policy(his wife)and then committing suicide.  There was a finding of simultaneous death.  In that context, it was held that

…the right to change the beneficiary was reserved to the insured employee and as such the interest of the beneficiary is a mere expectancy, a vested interest subject to being divested, or an inchoate right.  51 Misc2d 377, 273 NYS2d 167

The brother’s reliance upon Finger v. Treitler29, was also inappropriate as Finger did not have the added imprimatur of an Order of the Court preventing the change in beneficiary, something the legislature added when it enacted and directed the Automatic Orders; and something the wife was advised of and put on notice when she was served with the Divorce Summons.  In other words, once the divorce was commenced and the Automatic Orders filed and served, each of the parties were granted a vested right in any existing life insurance policy that they were named as a beneficiary.

On a practical level, the husband’s position was that to permit the change of beneficiary would circumvent the express purpose of the Automatic Orders; if the wife, while the divorce was pending wished to change beneficiaries, she always had the option of obtaining permission to do so from the divorce Court; to have done so, surreptitiously, indicates a desire to violate law in an attempt to prevent the husband from collecting what he is entitled to.

As Automatic Orders are not conditioned upon either parties’ actions concerning maintaining a specific asset, so for the brother to have claimed that the husband was less than entitled to the proceeds because he did not directly pay the premiums while the divorce was pending was without merit, and not a factor based upon what the automatic Orders provide.

Nothing done by the husband directly impacted upon the brother’s entitlements here.  The wife, by her intentional violation of the Automatic Orders, created enforcement similar to civil contempt.  When civil contempt is remedy, it has been held that

…civil contempt fines must be remedial in nature and effect(Gompers v. Bucks Stove & Range Co., 221 US 418, 31 SCt 492, 55 LEd 797).  The award should be formulated not to punish an offender, but solely to compensate or indemnify private complainants(Geller v. Flamount Realty Corp., 260 NY 346, 183 NE 520; Socialistic Co-op. Pub. Assn. v. Kuhn, 164 NY 473, 58 NE 649)…State v. Unique Ideas, Inc.30

In reality, that is what the husband sought; a return to the status quo prior to the violation of the Automatic Orders, i.e., reinstatement as beneficiary of the insurance policy, what the Courts ultimately did.

The brother raised the issue of "hornbook law" concerning paying the funds to him, citing Ins §3212(b)(1), which states that

If a policy of insurance has been or shall be effected by any person on his own life in favor of a third person beneficiary, or made payable otherwise to a third person, such third person shall be entitled to the proceeds and avails of such policy as against the creditors, personal representatives, trustees in bankruptcy and receivers in state and federal courts of the person effecting the insurance.

The husband’s position that it was not totally relevant, as he was the original designated beneficiary in effect when the divorce action started and the Automatic Orders went into effect; he is not a creditor, personal representative, trustee in bankruptcy or receiver in a Court.  In fact, Smith v. Prudential Life Ins. Co. of America31, confirms that to change a beneficiary, it must be done properly, something the wife did not do when she violated the Automatic Orders, when it held

…the proceeds of insurance issued pursuant to the SGLIA are insulated from attack by any claimant other than the designated beneficiary (Prudential Ins. Co. of Amer. v. Parker, 7th Cir., 840 F2d 6).  The designated beneficiary will prevail unless it is demonstrated that a properly executed change of beneficiary form has been submitted(see, Lefrak v. Lefrak, 47 AD2d 912, 366 NYS2d 672;  Stribling v. United States, 8th Cir., 419 F2d 1350).  149 AD2d 681-2, 540 NYS2d 482

Also cited was Ins §3203(a)(4), but it was not entirely on point, as it provides that

Individual life insurance policies; standard provisions as to contractual rights and responsibilities of policyholders and insurers

(a) All life insurance policies, except as otherwise stated herein, delivered or issued for delivery in this state, shall contain in substance the following provisions, or provisions which the superintendent deems to be more favorable to policyholders:

(4) that the policy, together with the application therefor if a copy of such application is attached to the policy when issued, shall constitute the entire contract between the parties;  but in the case of policies that provide that the death benefit or other policy provisions may be changed by written application or by the written notice of exercise of one or more options provided in the policy, or automatically by the terms of the policy, the policy may also contain a provision that when such written application or notice of exercise of an option is accepted by the insurer or a notice of any change is issued by the insurer and, in each case, a copy of such application or notice is returned by mail or delivered to the policyholder at the policyholder's last post office address known to the insurer, such application or notice shall become part of the entire contract between the parties;

Interestingly, the brother also referred to AC v. DR32, where the wife requested an expedited trial because the husband had an advanced stage of brain cancer, with the trial commencing four months later, with the Court granting a divorce based upon constructive abandonment; and the trial continuing over five months; after trial, the husband committed suicide.  One of the keys was that the husband, a medical doctor, resigned from his medical practice, was unemployed and claimed he could not pay the pendente lite Order; but admitted on cross-examination that he had $13,410 per month in disability income and had a business account with over $600,000.  In Reliastar, the husband continued his employment with the Suffolk County Police Department and had his income subjected to an income execution; with the pendente lite award approximately 79% of his net income.  Justice Bennett noted that the husband did not die of natural causes, but by the calculated act of suicide and his intent to do anything within his power to try and deprive the wife from any monetary benefit from him; making AC v. DR a case of first impression; and the manner of death given due consideration on the issue of abatement; and the application for divorce being unconditional; and the granting of it current and unconditional.  "Unclean hands" was raised concerning the husband’s intentionally causing his own death(suicide)and his intentional noncompliance with the pendente lite Order.  Here, where the husband was expected to pay approximately 79% of his net income with an income execution in place made it distinguishable from AC v. DR.

The brother cited Jayson v. Jayson33, which I felt was not really relevant as it contained a direction to enter judgment after trial; then the husband committed suicide; and a request was made to have the divorce judgment entered based upon the direction.  Here, the issue was the wife’ change of beneficiary on the policy prior to the trial in violation of the automatic Orders and the Court later directing a divorce judgment, kind of like comparing apples to oranges.  If the wife had issued the change in beneficiary after the inquest, perhaps what had occurred in the divorce action might have an effect upon this litigation.

The bottom line is that the Appellate Division decided that the wife, by changing the beneficiary while the divorce was pending to her brother, outright, did exactly what the legislature wanted to prevent.  The key was not a finding of contempt, but to void the change in beneficiary by making sure that the husband’s economic rights were protected and awarding the proceeds of the policy to him and not relitigating the divorce.

Going back to the original process and staying third parties should only become necessary and/or appropriate to obtain information(from a safe deposit box)or to avoid a dissipation of an asset, especially important if the integrality of marital estate is threatened to such an extent as to frustrate equitable distribution.


1 2d Dept., 2015, 2015 NY Slip Op 04630, 2015 Lexis 4560; NYLJ, 2d Dept., 6/5/15, p. 28, col. 1.

2 23 AD2d 572, 256 NYS2d 395(2d Dept., 1965)

3 88 AD2d 966, 451 NYS2d 812(2d Dept., 1982)

4 107 Misc2d 814, 436 NYS2d 123(Sup.Ct., NY Co., 1980)

5 NYLJ, 5/17/81(Sup.Ct., NY Co.)

6 NYLJ, 4/14/81(Sup.Ct., Kings Co.), p. 7, col. 2.

7 93 AD2d 535, 462 NYS2d 469(2d Dept., 1983)

8 118 AD3d 846, 987 NYS2d 621(2d Dept., 2014)

9 35 Misc3d 591, 940 NYS2d 474(Sup.Ct., NY Co., 2012)

10 31 Misc3d 373, 916 NYS2d 755(Sup.Ct., NY Co., 2011)

11 As the wife had already passed away, a contempt finding against her would not lie, not would it accomplish anything.

12 37 Misc3d 1224(A), 964 NYS2d 60(Sup.Ct., Qns. Co., 2013)

13 32 Misc3d 1233(A), 936 NYS2d 61(Sup.Ct., Nass. Co., 2011)

14 172 Misc2d 153, 672 NYS2d 242(Surr.Ct., Bx. Co., 1998)

15 3 AD3d 671, 771 NYS2d 238(3d Dept., 2004)

16 77 NY2d 157, 565 NYS2d 440, 566 NE2d 639(1990)

17 289 NY 333, 45 NE2d 899(1942)

18 237 AD 367, 261 NYS 709(1st Dept., 1933)

19 149 AD2d 681, 540 NYS2d 481(2d Dept., 1989)

20 77 AD2d 298, 432 NYS2d 962(4th Dept., 1980)

21 160 Misc2d 728, 611 NYS2d 87(Sup.Ct., Kings Co., 1994)

22 160 NYS2d 414(AT, 1st Dept., 1954)

23 20 AD2d 608, 245 NYS2d 433(3d Dept., 1963)

24 99 Misc2d 989, 420 NYS2d 836(AT, 2d & 11th Dist., 1979)

25 30 NY2d 415, 334 NYS2d 388, 285 NE2d 695(1972)

26 77 AD2d 298, 432 NYS2d 962(4th Dept., 1980)

27 308 NY2d 447, 126 NE2d 555.

28 51 Misc2d 376, 273 NYS2d 165(Surr.Ct., Erie Co., 1966)

29 52 NYS2d 841(Sup.Ct., NY Co., 1945)

30 44 NY2d 345, 349, 405 NYS2d 656, 658(1978)

31 149 AD2d 681, 540 NYS2d 481(2d Dept., 1989)

32 NYLJ, 9/13/13(Sup.Ct., Nass. Co., Bennett, J; 12026188595994

33 54 AD2d 687, 387 NYS2d 274(2d Dept., 1976)