Using Post-Nuptial Agreements for Employer Plan Benefits is RISKY

By Joe Cicchinelli, IRA Technical Expert

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A recent court case highlights how risky it is when a married couple attempts to use a post-nuptial agreement when trying to waive spousal benefits to an employer retirement plan. In the case of Mid-American Pension v. Michael Cox, the court ruled that a surviving wife’s promise to waive her rights to her husband’s 401(k) funds by signing a post-nuptial agreement was invalid because the agreement wasn’t drafted correctly. As a result, she didn’t waive her rights and inherited his 401(k) money after he died, even though her husband wanted his parents to get the money. The interesting part of the case was that the husband and wife were married and divorced to each other twice before.

While the husband was single, he named his parents as the beneficiary of his 401(k) plan where he worked. Sometime later, he and his ex-wife remarried for the third time. Apparently, they both thought that the marriage might not work, so they both signed post-nuptial agreements.

In the post-nuptial agreements, they agreed that if their marriage ended again, they each waived their rights to each other’s property. With respect to her husband’s 401(k) plan, the wife specifically disclaimed all of her rights to it. A little over a year after the remarriage, the husband filed for divorce from her for the third time. Unfortunately though, he died about a week later, before the divorce was finalized.

His parents, who were named as the beneficiaries, and his surviving wife fought over who should get his 401(k) money. The court decided that his wife should get the money as her husband’s surviving spouse, despite the fact that she signed a post-nuptial agreement waiving her rights to his 401(k). Generally, a spouse is entitled to their spouse’s employer retirement plan funds unless they sign a waiver. Basically, if the idea was for her to waive her rights to the plan benefits, she should have signed a form provided by the plan.

Under federal pension law, there are many very strict legal requirements that must be met when a spouse tries to waive his or her rights to the other spouse’s retirement benefits. In this case, those rules weren’t met because the post-nuptial agreement was drafted incorrectly. So because the agreement wasn’t written properly, the soon-to-be-but-not-yet ex-wife got everything.

Whoever drafted the agreement didn’t understand the rules on how a spouse waives his or her rights to retirement plan money. In hindsight, they should have taken the easy route and used the plan’s form.