Madison - St. Clair Record

Tuesday, September 17, 2019

Appellate court upholds Crowder in family dispute over IRA funds

By Ann Maher | Feb 8, 2018

The Fifth District Appellate Court has upheld Madison County Circuit Judge Barbara Crowder in a family's dispute over ownership of a deceased man's retirement account valued in excess of $500,000.

In October 2015, Crowder dismissed a declaratory judgment suit brought by JoAnn Smith of Alton who sued her late husband's sons Scott Smith and Jeffrey Smith, also of Alton, and the Vanguard Group, claiming she was the rightful beneficiary of Donald's Smith's IRA.

Crowder's order dismissing JoAnn Smith's declaratory judgment action was made on the basis that a stipulated dismissal of an underlying divorce terminated an injunctive order, allowing a beneficiary change to be effective, even if it violated the injunction when made, the split ruling states.

According to background information in court documents, Donald Smith rolled over his 401K funds into an IRA on or about May 10, 2003, and designated JoAnn as primary beneficiary on or about July 31, 2013, with no secondary beneficiaries.

On Aug. 6, 2013, Donald filed a petition for a temporary restraining order and preliminary injunction against JoAnn "to maintain the status quo." He alleged that, during a two-week hospitalization starting on July 21, 2013, JoAnn had converted and attempted to convert assets from his various accounts. An injunction was entered on Aug. 8, 2013, ordering JoAnn to return all funds to their originating accounts, irrespective of whether the funds were individually or jointly held, the ruling states.

Donald Smith filed for divorce on Sept. 6, 2013, and changed his IRA beneficiary designation to his sons, Scott and Jeffrey, on March 13, 2014.

On Oct. 29, 2014, Donald and JoAnn reconciled and reached a stipulated agreement to dismiss both the divorce and injunction.

Donald died on March 30, 2015, and shortly thereafter JoAnn learned that the sons had been named beneficiaries of the IRA.

JoAnn's suit claimed that the fact that the beneficiary designation naming Scott and Jeffrey occurred while the injunction was in effect, was a "clear violation of the order, and thus, Donald's beneficiary designation should be declared invalid,"

In a 2-1 decision entered Jan. 31, Justices Thomas Welch and James Moore held that "a terminated injunctive order does not become void, having no legal effect, simply because of its termination."

They also affirmed Crowder's dismissal of the declaratory judgment action "because we find that there was no violation of the injunction while it was in effect."

"...[T]he voluntary dismissal of the dissolution petition was the terminating event for the injunction," the ruling states. "Therefore, there was no ownership transfer of the Vanguard account while the injunction was in effect and no other change in the status quo with regard to ownership. As Donald still owned the Vanguard account when the injunction was terminated, there was no violation of the injunction.

"Had the parties wished to draft their stipulation so that it prohibited a beneficiary change that did not result in a transfer of ownership while the injunction was in effect, they could have done so. They did not, and, thus, a mere beneficiary change did not violate the terms of the injunction."

Justice Melissa Chapman, in dissent, wrote that her colleagues "excuse the prohibited beneficiary change that Donald made on the basis that Donald's death, which triggered the ownership transfer, did not occur until after the injunction terminated. "

"Just as termination of an injunction does not retroactively defeat the injunction, the reversal of an injunction does not cause the contempt order to fail," she wrote. "To hold otherwise would frustrate the powers of the courts to preserve the status quo during litigation."

"...I find the majority's rationale–that the injunction should not be enforced because Donald would have been able to change the beneficiary without legal recourse at any time after the dissolution dismissal–equally unavailing. Indeed, it would encourage parties to disregard an injunctive order in the hope that the other party might not discover the violation until after the litigation terminates. Such a ruling undermines the circuit court's power and effectiveness, as much as would allowing someone to disregard a court's order in the hope that it might be overturned on appeal."

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Organizations in this Story

Madison County Circuit Court Vanguard Group