Frequently we have clients who come in after the death of a spouse and have learned that their spouse failed to update a beneficiary designation of a life insurance or an IRA or some other retirement account after a divorce. They want to know if there is anyway to prove that their spouse simply forgot to change the designation and would have wanted their current spouse or their children to be the beneficiaries. The short answer sadly is no.
A recent case in the U.S. Supreme Court, Kennedy v. Plan Administrator for DuPont Savings Plan, shows how important it is to update your beneficiary designations after a divorce. Kennedy was an employee of Du Pont and invested in the company’s Savings & Investment Plan (SIP). After his marriage he designated his wife as the beneficiary of the SIP account. When the couple divorced a few years later, the divorce decree divested his wife of all interest in the SIP account, however Mr. Kennedy did not sign a new beneficiary designation removing his ex-wife and designating his children. When Mr. Kennedy died, Du Pont paid the proceeds of the SIP, which was about $400,000 to his ex-wife.
The case went all the way to the U.S. Supreme Court which held that the payment to the ex-wife was proper. The Court based its decision on ERISA (Employee Retirement Income Security Act of 1974) which requires that plan administrators follow the beneficiary designation. Even though the divorce decree had divested the wife of her interest in the account, the husband had to change the beneficiary by signing a new designation.
This case highlights how important it is to check the titling of assets and the beneficiaries of all life insurance policies and retirement plans after a divorce. Updating your estate plan is also necessary. If you had a living trust with an ex-spouse, you need to create your own living trust. Scott C. Soady, A Professional Corporation can help you with a new revocable living trust package and changing your beneficiary designations if necessary.