Pay Attention to Beneficiary Designations on Retirement Accounts
A client who is going through a divorce cannot rely on the trial court or property settlement agreement waiving the ex-spouse’s rights to retirement account assets. The Supreme Court of the United States in a case decided on January 20, 2009, confirms that the beneficiary designation under an ERISA plan (Employee Retirement Income Security Act of 1974) trumps any contrary provision in a divorce or settlement agreement.
In Kennedy v Plan Administrator for DuPont Savings and Investment Plan et al. U.S. Supreme Court, No. 07-636, the divorced spouse never updated his beneficiary designation to remove his ex-wife as the primary beneficiary under his retirement plan. Upon his death, the Court found that DuPont acted properly in paying the account balance to the ex-wife despite her having signed a waiver to the plan benefits as part of the divorce.
The Court reasoned that giving the Plan participant clear rules for updating beneficiary designations relieves the Plan administrator from having to examine numerous external documents purporting to be waivers. The onus is on the Plan participant to make sure his or her beneficiary designations reflect the participant’s current intentions.
This is in stark contrast to the situation where a decedent’s ex-spouse is still named as beneficiary on a life insurance policy. In that case, state law, not Federal law, will control. Richard v. Martindale, No. 09 CV 4159 (ND Ill, June 14, 2010) confirms Illinois’ current law that when there is a divorce decree waiving a spouse’s interest to a life insurance policy, the waiver will operate to correct a beneficiary designation when the decedent neglected to remove ex-spouse as the primary beneficiary.