Will your “ex” get all your retirement accounts?

Yet another lost lawsuit should be a wake-up call to everyone who’s divorced. Change the beneficiary forms on your 401(k) or IRA to remove your ex-spouse. Otherwise, your ex will become unexpectedly rich.

In recent Virginia case, a couple divorced and the husband signed a waiver, agreeing not to exert his legal rights against his wife’s 401(k). A few years later, she died without having taking his name off the beneficiary form. The husband sued and won the money.  Federal law requires the retirement-plan trustee to distribute the account to the person named, regardless of circumstances. It doesn’t matter what the will or living trust says, or what promise the ex signed. If your ex is on the papers, he or she wins. (As a consolation prize, the wife’s estate was allowed to sue the ex-husband for the money, if he still has it.)

It’s not only exes who become surprise heirs. I found another case where a man named his sister as beneficiary of his IRA, years before he married. He never changed the beneficiary form. The IRA grew to more than $1 million and — yes — when he died, his sister, not his wife, got the money.

You can read more about this, and the error of leaving your IRA or 401(k) to your estate, in my Dimespring column.




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1 comment
felinefrenz // 04/18/2013 at 3:25 pm

There are many more households where none of these things happen.

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