In my last post, I gave a grim answer to RM, a widow who had just learned that her recently deceased husband had forgotten to change the beneficiary designation on his 401(k) account, which still listed his former wife.
Would her husband's ex inherit the account as a result? she asked.
I wrote that that was indeed likely.
Well, hold the phone! It looks as if I was wrong!
I based that answer on a recent U.S. Supreme Court decision, 'Kennedy vs the Plan Administrator for the DuPont Savings and Investment plan'. In that case, the court unanimously decided that the DuPont plan must pay the decedent's 401(k) account to his former spouse even though she had waived her right to it in their divorce decree.
The reason: The decedent hadn't changed his beneficiary designation.
But I kept researching this question even after I posted that answer. (This is a perfect illustration of how blogging is often the equivalent of writing up your notes while you continue to report.)
I'd glad I did:
In every respect but one, the Kennedy case is the same as RM's -- but that one respect makes a critical difference, says Bob Walter, an attorney who specializes in 401(k) plans and is a principal at Buck Consultants.
In the Kennedy case, the alternative claimant to the 401(k) account was the decedent's estate. In RM's case, the claimant is the decedent's surviving spouse. That's an important distinction.
Let's put some names on RM's drama to make Walter's explanation easier to follow. We'll call our surviving spouse Rose, her late husband John, and his former wife Betty.
Federal law says your spouse is entitled to be your 401(k) beneficiary unless he or she waives that right and gives written consent to the designation of another beneficiary.
So as soon as John married his second wife Rose, she was entitled to be his beneficiary. Assuming Rose never waived that right or consented to the designation of another beneficiary, Walter says that Betty the ex wife can no longer have a valid claim on his account.
He notes that the typical language in a large 401(k) plan's Summary Plan Description states: "If you and your spouse become legally divorced and you have specifically named your spouse as your designated beneficiary, that designation will remain in effect despite the divorce until you submit a new designation or you marry a new spouse." (Italics added.)
My initial post was right in one respect: RM should definitely consult a lawyer. "Assuming that she can prove the fact of the marriage, she would appear to have a meritorious claim," says Walter.
Please send your questions to Lynn@LynnBrennersFamilyFinance.com. I'm sorry I can't respond personally to every email. Questions are only addressed online.