Divorced Spouse not removed as Beneficiary

DIvorced plan participant dies.  QDRO $$ was allocated to the ex-wife a few months ago. Plan participant dies last week and his bene is still the ex-wife.  No updated bene form was completed. She is entitled to his 401k, correct?  His contigent benficiares are his 2 sons. 

Does the plan document have any tiny print saying a divorce automatically revokes a beneficiary designation of a former spouse?

5 minutes ago, Bri said:

Does the plan document have any tiny print saying a divorce automatically revokes a beneficiary designation of a former spouse?

Ah, yes it does!  Thank you so much. Should have looked there first! 

If BenefitsLink neighbors can help with an informal survey about IRS-preapproved documents:

Is a provision that divorce revokes a beneficiary designation (to the extent it names the participant’s former spouse) in the basic plan document?

Is a provision that divorce does not revoke a beneficiary designation (even if it names the participant’s former spouse) in the basic plan document?

Does the adoption-agreement form display a choice about whether a divorce revokes a beneficiary designation?

If a few answer, even on just one document, until we’ve described the most widely used documents, we’ll have a useful sense about how plans’ documents handle this point.

New Cycle 3 document that we use defaults to the automatic revocation of spousal designation upon divorce. There is an OPTION in the Appendix to choose not to apply this automatic revocation. 

Belgarath, thank you.

Just curious, if either an adoption agreement or an appendix (or some call it an addendum) invites a user-specific provision, is there some legal, procedural, or document-specific difference between such an appendix and an adoption agreement?

Neighbors, has anyone seen an IRS-preapproved document in which a divorce revokes a beneficiary designation but the user is not offered a check-the-box or fill-in line to vary that provision?

On 7/18/2022 at 10:12 AM, Peter Gulia said:

If BenefitsLink neighbors can help with an informal survey about IRS-preapproved documents:

Is a provision that divorce revokes a beneficiary designation (to the extent it names the participant’s former spouse) in the basic plan document?

Is a provision that divorce does not revoke a beneficiary designation (even if it names the participant’s former spouse) in the basic plan document?

Does the adoption-agreement form display a choice about whether a divorce revokes a beneficiary designation?

Corollary: what do beneficiary forms and/or SPD and/or any other EE communication say about this feature?

If the IRS-preapproved documents allow a user plan sponsor to choose or negate a provision that a divorce undoes a beneficiary designation, does the software for assembling other documents to follow the user’s choices:

put a conditional text in, or omit a text from, the summary plan description?

put a conditional text in, or omit a text from, the beneficiary-designation form?

"DIvorced plan participant dies.  QDRO $$ was allocated to the ex-wife a few months ago. Plan participant dies last week and his bene is still the ex-wife.  No updated bene form was completed. She is entitled to his 401k, correct?  His contigent benficiares are his 2 sons."

Is you statement that "QDRO $$" your way of saying that a portion of the Participant's 401(k) balance was allocated to the ex-wife as the Alternate Payee by a QDRO that was served on and approved by the Plan Administrator?  Are you suggesting that there is some other potential recipient for the amount allocated by the QDRO?  Confirm that you are aware of the Pension Protection Act of 2006 and 29 C.F.R. 2530.206(c)(1) permitting the entry of a post mortem (posthumous) QDRO so that even if the QDRO is defective it could be reissued and the Plan would have to enforce it.  

Let's assume that the decedent named the former spouse named his ex-wife as the beneficiary of his 401(k) and never changed that designation.  I have never seen a plan that negated a beneficiary designation on divorce.  Believe it or not there are Marital Settlement Agreements ("MSA") drafted whereby the Participant agrees to maintain the former spouse as the beneficiary.

Was there anything in the MSA or in the Judgment of Divorce that addressed the 401(k) Plan?  What did it say?  Facts matter.  If it said that ex-wife gets $100,000 and the children get the balance, then that's interesting but not defininative.  See Kari E. Kennedy, Executrix v.  Plan Administrator for Dupont Savings and Investment Plan, 129 S.Ct. 865, 555 U.S. 285 (2009) that involved a situation where the former spouse was deemed by the trial court to have waived her interest in her former husband’s retirement plan.  The former husband failed to change the beneficiary of his Plan and on his death the retirement plan proceeds were paid to the former spouse whose name continued to appear on the beneficiary designation in the hands of the Plan Administrator.  The Supreme Court said that was the proper outcome, that the Plan Administrator was required to pay the proceeds to the designated beneficiary.   

BUT.... the question was, can the estate of the husband in Kennedy sue the decedent’s ex-wife for unjust enrichment and recoup her ill gotten gain (which she will have undoubtedly deposited into a bank in the Cayman Islands in a company set up by her brother-in-law through a Cayman attorney whose identity as the owner of these funds will shield the identity of the true owner of the account?)  Or how about suing the ex-wife as constructive trustee of the proceeds in her hands?  

    The Supreme Court in Kennedy expressed disclaimed any intention to answer the foregoing question, saying in Footnote 10:
        "Nor do we express any view as to whether the Estate could have brought an action in state or federal court against Liv to obtain the benefits after they were distributed. Compare Boggs v. Boggs, 520 U.S. 833, 853, 117 S.Ct. 1754, 138 L.Ed.2d 45 (1997) ("If state law is not preempted, the diversion of retirement benefits will occur regardless of whether the interest in the pension plan is enforced against the plan or the recipient of the pension benefit"), with Sweebe v. Sweebe, 474 Mich. 151, 156-159, 712 N.W.2d 708, 712-713 (2006) (distinguishing Boggs and holding that "while a plan administrator must pay benefits to the named beneficiary as required by ERISA," after the benefits are distributed "the consensual terms of a prior contractual agreement may prevent the named beneficiary from retaining those proceeds"); Pardee v. Pardee, 2005 OK CIV APP. 27, ¶¶ 20, 27, 112 P.3d 308, 313-314, 315-316 (2004) (distinguishing Boggs and holding that ERISA did not preempt enforcement of allocation of ERISA benefits in state-court divorce decree as "the pension plan funds were no longer entitled to ERISA protection once the plan funds were distributed")." (Emphasis supplied.)

 Note that the Kennedy decision was consistent with the Maryland case of PaineWebber v.  East, 363 Md. 408, 768 A.2d 1029 (2001) - which you can find at - 
http://scholar.google.com/scholar_case?case=14624602948014812254&q=paine+webber&hl=en&as_sdt=4,21.  

In that case the husband failed to remove his ex-wife's name as beneficiary of his IRA account [IRAs are not subject by ERISA] valued at about $600,000.00 which, per the agreement of the parties, he was to retain as his property.  The husband remarried and then died without having changed the beneficiary.  The former spouse filed suit to recover the IRA balance arguing that she was the named beneficiary - which was true.  The Court of Appeals held that the former spouse would receive the money despite language in the separation agreement that provided:

"Each of the parties hereby expressly waives any legal right either may have under any Federal or State law as a spouse to participate as a payee or beneficiary regarding any interests the other may have in any pension plan, profit-sharing plan, or any other form of retirement or deferred income plan including, but not limited to, the right either spouse may have to receive any benefit, in the form of a lump-sum death benefit, joint or survivor annuity, or pre-retirement survivor annuity pursuant to any State or Federal law, and each of the parties hereby expressly consents to any election made by the other, now or at any time hereafter, with respect to the recipient and the form of payment of any benefit upon retirement or death under any such pension plan, profit-sharing plan, or other form of retirement or deferred income plan."

 An IRA does not fall under ERISA, but the outcome was the same.  

There are a growing number of cases where court have found creative ways to circumvent Kennedy post-distribution.  

So Mr. ratherbereading, I would be grateful is you would quote exactly the language of the Plan document that says would not rely on language in the Plan that speaks of revocation of a beneficiary designation of a former spouse. "It ain't necessarily so."   I don't believe it only says "a divorce automatically revokes a beneficiary designation of a former spouse."  I would place a small wager that it says MORE than that.  Your statement that you didn't look at the Plan language first is disconcerting.

We are using FT Williams and the option to revoke the beneficiary designation appears in the AA.  In Datair, I think it is in the BPD and is an automatic revocation.

The ftwilliam documents have an option (yes/no) for automatic revocation of a beneficiary designation upon divorce.  That choice is carried over into the SPD.

Barbara and cathyw, thank you for your helpful information about ftwilliam and Datair documents.

Especially helpful is the information that the choice in ftwilliam processes into a summary plan description.

Does anyone know what the ASC documents do?

FIS pre-approved documents also modify the SPD if the election in the appendix is made.

Belgarath, thank you.

We now have information on Datair, FIS, and ftwilliam. Beyond ASC, is there another widely used documents provider we're missing?

Agree regarding present Relius and FTW documents, but I would note a caution concerning state law.  California is not among that states that explicitly  permit this and FTW has noted that they will be removing any automatic application when the docs are restated.  There is, of course, litigation on  ERISA pre-emption concerning this, but the results are messy and all over the place.  (Good article with case summaries is at familylawyermagazine.com/articles/change-beneficiary-designations-after-divorce updated January 2021).  There are 23 states which have laws explicitly permitting this, but many of these cases and/ or laws concern life insurance, so again, caution regarding reliance.  The TPA firm where I work is in California and so are almost all of our client plan sponsors.  I advise plan sponsors not to rely on this.  Litigation is no one's friend (unless you are a trial lawyer!)

I double checked and in Datair, it's also an option to be checked in the AA (not in the BPD).

In the ASC BPD, the default is that the designation of the spouse as beneficiary is automatically rescinded. In the AA, the Provider may elect to override the default and not rescind upon divorce.

When the default is used, the SPD states that if the spouse is the beneficiary, the beneficiary designation is automatically revoked upon a formal divorce decree.

If ERISA governs the retirement plan, the plan’s administrator decides the plan’s distributee applying ERISA and the plan’s governing documents. ERISA supersedes States’ laws, at least for administering the plan.

Some (but not all) courts have held that ERISA does not preempt a State court’s order—if the order does not involve the plan or any fiduciary of it—about ordering property interests between the plan’s distributee and others who might have a property interest. Such an adjustment happens after the ERISA plan has paid or delivered the plan’s benefit (or does not constrain the ERISA-governed plan’s administration).

ERISAGirl, thank you for the helpful information on ASC.

Barbara, thank you for double-checking on Datair.

It seems these four document providers’ consensus is showing a user a choice, and setting as the default undoing a beneficiary designation that would provide for a former spouse.

On 7/18/2022 at 5:20 PM, fmsinc said:

So Mr. ratherbereading, I would be grateful is you would quote exactly the language of the Plan document that says would not rely on language in the Plan that speaks of revocation of a beneficiary designation of a former spouse. "It ain't necessarily so."   I don't believe it only says "a divorce automatically revokes a beneficiary designation of a former spouse."  I would place a small wager that it says MORE than that.  Your statement that you didn't look at the Plan language first is disconcerting.

It's not Mr. to begin with.  And I cannot wade through your post for fear I shall be put to sleep. Yikes!! And I'm not sure what you are trying to say with your first sentence. Yes, the plan document does indeed say exactly that. 

Letter sent to my sister’s ex husband will explain my situation when we found out he accepted a beneficiary check that was never meant for him. Our family needs to get in touch with you regarding a very serious mistake made by my sister prior to her death. She had 2 different PERA accounts. She most definitely assumed the PERA accounts were combined when she changed the beneficiary after your divorce. Legal paperwork can be confusing. This was definitely an oversight on her part. In her final days, she scrambled to get her finances in order. The cancer took her faster than we or she anticipated. She wanted her immediate family to inherit ALL her assets. Her family meant the world to her. We were there holding her hand throughout this entire process. She suffered terribly. Without being rude, do you really think she would have left you a dime? You got your current wife pregnant while you were an officer in the Air Force and you were still married to my sister. You broke her heart more than anyone in her life. I don’t know what makes you feel entitled to her money. We are all dumbfounded that you accepted the money and now you are avoiding us. You are disrespecting her wishes and you are hurting our family. We have enough to grieve about. This is a blow to us because we know she would be devastated if she knew you got her money. 

It is obvious you are financially set with your current situation. Your family’s needs and wants were never my sister’s concern or problem. You no longer have to share your Social Security with her, which was in your divorce agreement. It was also in your divorce agreement that you would not go after each other's retirement. If you were to die before her, she was going to put your social security money in a Trust for your children because she was a good person. She didn’t want to hurt your children. She didn’t want your wife to get any of that money if you would have died before her. 

If we take this to court, it can be drawn out and we all will be paying money for lawyers. I will have a slew of people that will testify on my sister’s behalf. I hope you do the right thing and respect what my beautiful sister would have wanted. 

You might want to do the following before you write the letter.  (Full disclosure I don't work on government plans So some of this might not apply.  I fully admit I am a CPA not a lawyer)

But in many private sector plans they have a provision that revokes all prior beneficiary election upon divorce.  If this plan has such a provision you need to ask why they paid the former spouse.  I wouldn't be optimistic.  The plan paid the money and they tend to make sure they are paying the person that ought to be paid per their records.  

You can write any letter you want but as a general rule you are on the losing end of this situation if you go to court.   Judges are going to be very hesitate to overturn something written for claims of intent regarding a dead person from people who stand to gain financially from the conflict.  I am not trying to be mean here.  I am being realistic here.  Anyone who works in this industry long enough sees this and you are most likely correct.  You late sister most likely didn't intend for her former spouse to get the money but there is a written direct verse other people's word.  Courts aren't willing to over turn the written directive.   Add to it he has the money already. 

Sorry, for your loss.