Death After Divorce: When a Party Fails to Change Beneficiary Designations

After resolution is reached in a dissolution of marriage, either by agreement or litigation, there are still additional actions that need to be taken to complete the transfer of assets or obligations. These actions fall on the parties to complete such as removing a former spouse from a joint bank account, refinancing a loan on an asset or changing the beneficiary designation on a life insurance policy or retirement plan.

At some point, the ex-spouse will pass and there will be complications if the former client has not changed the beneficiary designation. For example, there are federal laws and state statutes that may conflict and adversely affect some assets such as retirement plans under ERISA. If the parties agreed in their dissolution agreement that the employee spouse will retain her interest in a retirement plan managed by ERISA and the other spouse agrees to waive any and all interest in that plan including beneficiary designations upon death, then what happens if the employee spouse dies before she changes the beneficiary designation? The agreement is a contract under state law but ERISA is governed by federal law which preempts state law so it is possible that the benefit will be distributed to the ex-spouse. Clearly this was not the intent of the deceased spouse and her heirs may bring a suit to re-allocate the benefit but that requires additional litigation.

It is important to review your dissolution agreement and ensure that all transfers have been complete to avoid unnecessary headaches in the future.