Retirement plans don’t automatically change with divorce
When a couple is married, they likely don’t give a second thought to the beneficiaries of their 401(k)s and other retirement accounts, and for good reason: unless otherwise specified, a spouse is usually the beneficiary of retirement funds. However, when a couple obtains a divorce, many are unaware that this designation does not automatically change, even if a court has ordered the retirement funds divided a certain way in the property settlement.
Therefore, retirement accountholders need to ensure that they take the appropriate action regarding their accounts following a divorce or some other family law event. If an accountholder does not act, most accounts will continue to list a former spouse as a beneficiary, despite the couple’s marital status or a court order.
It is important to revise the beneficiary designations on retirement accounts, wills, trusts, and similar assets as soon as possible following a divorce. 401(k)s and other retirement plans should have something called a “spousal waiver” which allows the accountholder to change the beneficiary to someone other than his or her spouse or former spouse. This usually cannot be completed until after a divorce is finalized, but it is essential to do it as quickly as possible.
Future spouses may include these details on a prenuptial agreement, to the effect that one or both may waive the rights to one another’s retirement plans upon divorce. However, a spouse cannot sign the spousal waiver form until after the couple is actually married. Hopefully, the spouse will not refuse to sign the waiver at that time, which could create some tension in the new marriage.
Source: Forbes, “Don’t Let Your Ex-Husband Inherit Your 401(k),” Jeff Landers, July 27, 2011