Q: My husband passed away about 3 months ago. He had a 401(k) plan with his employer. I just received paperwork in the mail about inheriting the account -- and although it was sent to our address, it had his ex-wife listed as the spousal beneficiary. I'm not quite sure what to do about this.
I've noted in your previous Q&A posts that the surviving spouse is entitled to be the husband's beneficiary unless she waives her rights. But I've also found some cases where the ex-wife's claims were held up in court. I've been afraid even to call the plan provider for fear that they'll uphold her as beneficiary. Do you have any advice for me? What would the plan administrator's response be if I called to inform them that I am the surviving spouse? --RM, via email
But there's no reason to delay in calling the 401(k) plan's administrator. You have to alert them to the situation; among other things, it's the only way to find out if they mistakenly sent you outdated paperwork. That's very unlikely, but it would quickly resolve things in your favor.
It's also possible that your late husband's plan has a provision automatically revoking a spousal beneficiary designation after a divorce. Some 401(k) plan documents have such a provision, says David Wray, president of the Profit Sharing/401(k) Council of America.**
Otherwise, your prospects are bleak. [I was wrong about this: See my next post.]
You're right that in cases very similar to yours, the ex-wife's claim has been upheld in court.
The big precedent is 'Kennedy vs the Plan Administrator for the DuPont Savings and Investment plan'. That case specifically focussed on how to decide who inherits a retirement plan account when the beneficiary form says one thing, and a divorce decree says another -- and it was unanimously decided in the ex-wife's favor by the U.S. Supreme Court just a year and a half ago.
In that case, William Kennedy had named his wife Liv Kennedy as his beneficiary in 1974. They divorced in 1994 -- and in the divorce decree, she waived her rights to any benefits under his retirement plans.
William Kennedy died in 2001, leaving $402,000 in his account in the DuPont plan. He had wanted that money to go to his daughter, Kari Kennedy, but he hadn't changed his beneficiary designation in the plan. Maybe he assumed the divorce decree made that unnecessary; or perhaps he intended to do it but never got around to it. (He did change his beneficiary designation in another plan.)
His daughter Kari, who was also his executrix, asked DuPont to distribute the account to his estate. She contended that there was no named beneficiary on the account, since Liv had waived her rights in the divorce decree. (When there's no designated beneficiary, a retirement account goes to the decedent's estate.) But DuPont said its only option was to follow the beneficiary designation form, which listed Liv Kennedy.
The Kennedy estate then sued DuPont and the plan administrator for the funds, arguing that Liv had waived the account in the divorce decree. The first court to hear the case agreed with that argument. But DuPont appealed to the Fifth Circuit Court, which rejected the earlier decision. Its reason: The waiver in the divorce decree was not a 'qualified domestic relations order' or QDRO. (A QDRO is a divorce court order specifically addressed to the administrator of the retirement plan. See my earlier post).
The case ultimately went to the U.S. Supreme Court, which on January 26, 2009 unanimously ruled that retirement plan documents must prevail: the person named on the beneficiary form gets the money.
The Court noted in its decision that in this case, the result wasn't a foregone conclusion: The DuPont plan had provided a way for William Kennedy to change his beneficiary designation, and also for Liv Kennedy to disclaim his account within nine months of his death. Neither of them had exercised these options.
Your situation sounds almost the same, except that you are the surviving spouse. That fact may give you a stronger case to pursue against the ex-wife in state court.
Your late husband's plan administrator is going to follow the DuPont precedent, and pay his account to the named beneficiary. If that's your late husband's ex-wife, your only chance of getting this money is probably to sue her for it.
Once the account is paid to her, it's no longer governed by ERISA, the federal law that applies to employer-sponsored plans. This could help you. In Footnote 10 of the DuPont decision, the U.S. Supreme Court left open the possibility that after William Kennedy's account lost its ERISA-protected status, his daughter might have a legal case against his ex-wife to recover the money, based on the divorce decree the ex-wife had signed.
If you decide to pursue this, you will need the assistance of an attorney who specializes in estate law and has litigation experience. (See my earlier post about how to find one.) In your place, I would call the plan administrator and fully inform him of your situation; and at the very least, I would consult an estate lawyer for an expert opinion about your chances if you sue the ex-wife.
**This paragraph wasn't in my original post.
Please send your questions to Lynn@LynnBrennersFamilyFinance.com. I'm sorry I can't respond personally to every email. Questions are only addressed online.