Berman & Asbel, LLP

After divorce, what happens if your ex is still named beneficiary on accounts?

In a divorce, it is common to have to deal with who gets rights to various assets acquired during the marriage.  Let's suppose those issues have been resolved.  Now you have your IRA or your insurance policy and your divorce settlement says your ex has no claim to it.  However, before you get a chance to remove your ex from being listed as the beneficiary, you unfortunately die.  What happens?  Does your ex receive that money?

In Pennsylvania, section 6111.2 of the Probate, Estates and Fiduciaries Code deals with this issue for accounts like a IRA,  insurance policy or other account in which there is a beneficiary named.  This law says that when the owner of the account and the beneficiary become divorced, the beneficiary designation naming the former spouse becomes ineffective and the account is handled as if the former spouse had died before the owner.  The exception is if there is clear indication to the contrary that the former spouse should remain the beneficiary such as clear wording that the designation was intended to survive a divorce, a court order from the divorce case or a contract between the former spouses providing for the beneficiary designation to survive the divorce.

Another big exception to this rule is in accounts which are covered by the federal ERISA (Employment Retirement Income Security Act) law - like a 401(k).  These are generally accounts that one gets as a benefit through employment.  For those accounts, federal law trumps state law and the federal law is to go by the written designation, even if a divorce occurred. 

While the state law is helpful for non-ERISA accounts, the best way to avoid any future problems in this area is to promptly change one's beneficiary designations after a divorce is completed.  While you are at it, updating one's will after a divorce is also a great idea just to make sure your estate plan is really what you want.

Readers should not solely rely on this note but should consult with a competent attorney licensed in their state. You can also find more information in my firm's websites on Family Law and Wills and Estate Planning and Administration.

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