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Money July 2014

Dollar Sense

The Beneficiary of Your Spouse’s Retirement Account May Not Be You

By Teresa Ambord

Don’t assume your divorce decree makes null and void the old beneficiary designation. And don’t rely on the laws in your state to keep your funds out of your ex-spouse’s hands. The fact is, according to, that ex-spouse scoundrel just might end up living high on your retirement money someday.

If your spouse has a retirement plan of his or her own, are you the beneficiary? Are you sure?

Federal law requires that for 401(k) plans and most types of retirement accounts, the spouse must be the beneficiary. But this is not true of all types of retirement plans. And depending on where you live, you could be in for an unpleasant surprise someday, especially if your spouse was previously married.

If you live in a community property state (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, or Wisconsin, and if the spouse signs a community property agreement, Alaska), your spouse or registered domestic partner or civil union partner owns half of what you have in your retirement account, assuming the money was contributed to the account while you were married. If you do not live in a community property state you can name anybody you want as the beneficiary of your IRA, even if you are married.

So let’s say you and your husband do not live in a community property state. He was previously married, and during that marriage, he opened an IRA and named his wife at that time as the beneficiary. It’s not unusual to forget details like that after a divorce. You would naturally assume the money in his IRA would be yours if he passed away. Imagine the ugly surprise when the ex-wife inherits the IRA instead of you. Before that happens, check the details and make the necessary changes.


Divorced and Retirement Accounts, the legal encyclopedia, advises that if you had a retirement account for which your spouse was the beneficiary and you subsequently divorced, contact the retirement account administrator. Don’t assume your divorce decree makes null and void the old beneficiary designation. And don’t rely on the laws in your state to keep your funds out of your ex-spouse’s hands. The fact is, according to, that ex-spouse scoundrel just might end up living high on your retirement money someday.

Here’s what happened to one Texas woman, as reported on

As a teacher, her retirement fund included a nice annuity. Because Texas is a community property state, her spouse was the beneficiary. Later they divorced, and she relied on the divorce decree which stated he lost his right to her retirement account. Therefore she did not take action to change the beneficiary. Unfortunately, she did not notice that the divorce decree did not specifically mention the annuity. When she died, he was entitled to her annuity.


It’s Up to You, Not the Plan Administrator

You may have the most compelling story in the world. But the plan administrator is bound by the terms of the retirement account and is not supposed to figure out what is fair or who gets what. If you don’t want your ex-spouse to end up with your money, check to find out if he or she is the named beneficiary of your retirement accounts now while there is time.

The same is true for employer-provided life insurance. Even where state law automatically revokes the ex-spouse’s right to inherit, sometimes, these details slip through legal cracks. Take a look at what happened to the widow of this man.

After three marriages and a battle with leukemia, Warren Hillman died at the age of 66. Among his assets was a life insurance policy, in the amount of $124,558.03. Although he and ex-wife Judy Maretta had been divorced for more than 10 years, she filed for those benefits and got them.

The trouble with that was, Hillman was married to Jacqueline at the time of his death. Naturally Jacqueline believed she should have gotten the proceeds of her late husband’s life insurance.

She took the case to state court to recover the benefits, but lost. Eventually she took her claim all the way to the Supreme Court. Unfortunately for the current Mrs. Hillman, the Supreme Court sided with the ex-wife, Judy Maretta, because she was the named beneficiary in Warren Hillman’s life insurance policy.

According to, long before a case goes this far, a state can step in and help when a decedent’s marital status has changed, but he or she did not remember to change beneficiaries. The Hillman case illustrates why you should never count on that.

What does Legalzoom recommend? Every three or four years check who your beneficiaries are to be sure they are still what you intend. The same goes for our estate planning documents. Certainly, if you make a major life change –  marriage, divorce, or another heir is added to the family such as a grandchild, or if one of your heirs gets divorced and the departing spouse is in your estate plan or is a named beneficiary – rethink and revise the documents. If you don’t know how to do it, talk to your financial adviser, or if the plan is through your job, ask your human resources department.


Waiving Your Right to Inherit

By federal law, you are the beneficiary on your spouse’s 401(k) plan and certain other qualified plans. You may decide to give up that right, for example, to allow your daughter or son to become the beneficiary. To do that, you must sign a waiver provided by the account representative. It needs to be witnessed by that rep, or signed by a notary public. Some financial experts recommend that regardless of the type of retirement account you have, if you want to leave your retirement plan to someone other than your spouse, get his or her consent in writing.

Many people mistakenly believe they can bypass the spousal right to be the beneficiary by putting it in a prenuptial agreement. According to Legalzoom, this is wrong. Nor can you use your will to bypass your spouse’s right to your retirement account. If that is your intention, obtain a proper waiver.

Suppose you do have a waiver on file. It allows your husband’s daughter to inherit his 401(k) account. If he later decides to keep the waiver but change the beneficiary to someone else, you can have the waiver voided.


What Do You Mean I’m Not Your Beneficiary?

If you want to read what can happen when spouses don’t name each other as beneficiaries of their assets, read “Sunshine after Rain: One Woman’s Journey to a Better Life” by J.R. Lucy. Of course, this true story takes place in Australia, so the laws, are different, but the idea still holds.

After decades of marriage, Lucy discovered her husband’s retirement account was in his name only and she was not going to inherit it if he died. To her that meant he did not see her as part of his retirement years. That’s only one of the reasons why she started building her “escape fund.”

J.R. Lucy’s story was a good read, with a style that draws the reader in. I admit, I didn’t find her main character (Lucy herself) to be all that likeable, especially when she left her husband of 30 years a few days before Christmas. Still, the story was good and it made me think.

Once she set her heart on leaving, she planned well for the financial side of divorce (in the form of her escape fund). But in her haste to leave the marriage, she missed some details which made the next few years pretty lonely. If she’d slowed down a little she might have been better prepared for what was to come. To name a few…

  • During her marriage she’d developed warm relationships with some of his family members, but when she left abruptly, she was no longer welcome in their lives.
  • She and her husband had long-standing friendships with three or four other couples. The couples shared a rich social life, weekly dinners, holidays, birthdays, annual excursions. Like his family, the friends blamed her for the sudden break-up and sided with him. She had not anticipated the loss of the friends and activities.
  • Her new living arrangement eventually forced her to give up the dog she loved.

Would she have acted differently if she’d thought of all that? Hard to say. But one thing is certain, she spent several very lonely years, something she had not planned for. If nothing else, her story might be a cautionary tale to anyone considering divorce, to slow down and count all the costs, not just financial. In the end, I think the author’s point was less about the problems she encountered than the fact that eventually she built a new life and did find sunshine after the rainstorm brought by divorce.


Teresa Ambord is a former accountant and Enrolled Agent with the IRS. Now she writes full time from her home, mostly for business, and about family when the inspiration strikes.

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