Life After Divorce: Determining Your Beneficiary Designations
A Little Backstory
In January 2009, the U.S. Supreme Court ruled (Kennedy v. DuPont Plan Administrator) against a woman suing her late father’s pension plan for money her mother received. This occurred even though the mother had forfeited her rights to the pension in their 1994 divorce. The Supreme Court determined the beneficiary designation form and the procedures set under the plan were sole determinants of benefit distribution.
Employers are required to pay benefits as stated in the original beneficiary designation form, in spite of a divorce decree.
Have You Changed all Your Beneficiary Designations?
It is important for all divorcing individuals to revisit their estate planning, including beneficiary designations, wills and trusts. Changes must be made to retirement plans in accordance with the rules set forth by respective employers. Otherwise, children and/or new spouses may not be eligible to receive benefits.
Remember the following points:
- Wills have no precedence/jurisdiction over the beneficiary designations of IRAs, 401(k)s, insurance policies and annuities.
- It is always important to designate a contingent beneficiary for these accounts. Otherwise, if a primary beneficiary predeceases the owner, the account will need to be probated.
- Naming a minor as a beneficiary sends estates straight to probate. Probate courts must supervise distributions left to minors. Establishing trusts in the children’s name will bypass probate.
- Changing beneficiaries can often be done online or with the assistance of a financial advisor.
If you do not have a financial advisor with expertise in divorce, please consider obtaining one. Divorce is likely to be the most difficult financial transition you will ever experience. In fact, in an article on Forbes.com, contributing author Robert Laura said, “I would even go as far as saying some people actually come to us (financial planners) before going to a therapist, pastor, or other source.”
The Bottom Line.
Professional guidance and support during and after this emotionally charged time will prove invaluable.
Wellspring Divorce Advisors helps individuals and couples address the financial aspects of divorce in a civilized, equitable, and efficient manner by providing expert divorce financial planning and advice.
Contact us to find out how we can help you through this process.
