Thursday, June 6, 2013
Are you divorced? Do you think that your divorce decree settled everything? Think again. Unless you make sure to change the beneficiaries on all of your forms, your ex might be entitled to your money, even if you get remarried. If you name your spouse as beneficiary of a 401(k) plan, pension plan, or employer-provided life insurance policy, and later divorce, you must change the beneficiary. The Supreme Court ruled that 401(k) and similar plans, including severance plans and employee savings accounts are governed by federal law, Employee Retirement Income Security Act (ERISA). That law requires the plan administrator to pay the proceeds to the named beneficiary - not to figure out who should get them. For example, when Warren Hillman died in 2008 at the age of 66, his assets included a life insurance policy worth $124,558.03. For the past five years his ex-wife and his widow have been fighting over that money. On June 3, 2103, the U.S. Supreme Court found that Judy Maretta, who Hillman divorced 10 years before he died, was entitled to every penny of it. All of this was because Mr. Hillman never changed the name on his beneficiary form. Forgetting to coordinate these non-probate assets, as they are called, with the rest of your estate plan can completely thwart your objectives, as it may have done for Mr. Hillman. This case reminded me of another example involving annuities. A couple gets divorced and the divorce decree stated that the husband had no more rights to his wife's retirement benefits. However, the decree did not mention the annuity specifically. As a result, when the woman died her ex-husband was legally entitled to the annuity benefits. LESSON OF THE DAY: Keep beneficiary forms up to date. Don't rely on what you believe is common sense to ensure that your assets will go to whom you intend.