Divorce and IRA Beneficiary Designation

[chris]

Taxpayer names Spouse 1 as beneficiary of IRA. Taxpayer divorces Spouse 1 but does not change IRA beneficiary designation. Taxpayer dies. Apart from any divorce decree or property settlement agreement which may have addressed Spouse 1's rights to the IRA, is there anything in §408 or Regs thereunder such that beneficiary designation is void by operation of law? Does answer change if taxpayer remarried prior to death? Pretty sure that Spouse 1 gets it, but just wanted to see if anyone else had run across anything different.

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[Kathy]

This is a big problem for IRA Custodians - we're usually bound by the written documents we have on file. So, if Spouse 1 is the designated beneficiary but there is a spouse 2 at the death of the IRA holder and spouse 2 puts in a claim, we're stuck with letting the court decide who gets it at the expense of the spouses 1 & 2. Once the legal fees are all paid there may not be anything left for anyone. That's why it is so important to update your paperwork any time there is a change like that.

[Bruce Steiner]

This will vary from state to state. In many states, divorce will automatically revoke any provisions for the spouse in a Will, but will not revoke any nontestamentary provisions for the spouse. However, in some states, divorce may revoke nontestamentary provisions; or divorce may not revoke provisions in a Will.

Of course, the parties ought to (i) deal with this in the separation agreement, and (ii) execute new Wills and beneficiary designations.

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Bruce Steiner, attorney

(212) 986-6000 (NY office)

(201) 862-1080 (NJ office)

also admitted in FL

[Guest John E McGrady III]

An IRA is not subject to ERISA and therefore state law should control your issue. In PA there is a specific statutory provision that would render the beneficiary designation void with respect to spouse 1. You need to check your state's applicable law in this area.