Change of Beneficiaries….

Submitted by Wendy Mommaerts on Tue, 2015-01-20 19:36

We have a husband and wife who have just started the divorce process and I was wondering…would they have to wait until the divorce is final before updating their beneficiaries on their IRAs, Life Insurance or retirement plans? Or can you proceed with making these changes now?



Submitted by Alan - IRA critic on Tue, 2015-01-20 20:42

If they do not reside in a community property state, they can change IRA beneficiaries anytime since the current spouse is not required to be the beneficiary on IRA accounts as they are on qualified plans. However, in a community property state where the IRA is community property, the IRA owner cannot name a non spouse beneficiary which would include both halves without a signed spousal waiver. The retirement plan will require a spousal waiver to be signed to name a non spouse beneficiary before the divorce is final. For life insurance, check with the insurer.



Submitted by Bruce Steiner on Tue, 2015-01-20 23:18

  • What if you live in a common law state but your IRA is community property because you funded it out of community property that you earned when you lived in a community property state?

 

  • What if you live in a community property state but your IRA is separate property because you funded it out of separate property?


Submitted by Alan - IRA critic on Tue, 2015-01-20 23:51

  • Good point about possible exceptions. They probably make the spousal waiver the only practical way for custodians to avoid litigation exposure.
  • Do most divorce attorneys include spousal beneficiary waiver completion as a matter of course, or just tell clients to update ASAP after divorce is final?


Submitted by Bruce Steiner on Wed, 2015-01-21 03:57

  • In many states, divorce automatically revokes any provisions for the former spouse (except under ERISA plans, since ERISA trumps state law).  
  • Many years ago, many states passed statutes whereby divorce automatically revoked the provisions in the Will for the spouse.  In recent years, many states have expanded this to cover beneficiary designations for nonprobate assets (other than under ERISA plans), on the theory that this is what most people would want, and anyone who wants to provide for a former spouse can do so by signing a new Will or beneficiary designation after the divorce.
  • Separation agreements often contain provision to that effect, but not always.


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