Q: My wife and I have been separated for over 12 years. We're friends, but don't live together.
During our marriage, I accumulated about $300,000 in a 401(k). After our separation, I saved another $300,00 in a 401(k) at a different company.
Since then, I've retired and converted both 401(k) accounts to IRAs.
If I die still being married, does she automatically get all the money, or can I choose to divide it any way I wish, by designating any beneficiaries I want? - SP via email
A: I'm all in favor of amicable break-ups, but it sounds as if yours may wind up being very expensive.
Had you divorced when you separated, your wife would have had an indisputable claim on a share of your first $300,000 401(k) account. But your second $300,000 account, which you'd have saved after the divorce, would have been indisputably all yours.
As things stand, she has a legal claim to a share of the entire $600,000.
You accumulated all that money during your marriage, so legally it's a marital asset. 'Married, but not living together, still friends' has no legal meaning. The law recognizes only two marital relationships: married or not married. And as you clearly realize, you are married.
Marriage and divorce are subject to state law. When you get divorced in a community property state, your spouse is entitled to half of your marital assets. If you divorce in an equitable distribution state, he or she is entitled to an equitable -- i.e., 'fair' -- share of your marital assets.
As for the inheritance rules, if this $600,000 were still in 401(k) plans, your wife would be entitled to inherit it all as your beneficiary even if you hadn't lived together for years. Employer-sponsored retirement accounts like 401(k)s are subject to federal law, which requires you to name your husband or wife as your beneficiary unless he or she has formally waived that right.
There's no such requirement for IRAs. You can name any beneficiary you wish. But the answer to your question really depends on the law of the state you live in.
Many states entitle your surviving spouse to a percentage of your estate -- usually one-third or one-half of your assets -- no matter what your will says. And in some states -- New York, for example -- your widow or widower can claim that share even against an IRA that you've left to other beneficiaries.
In other words, if you're still married when you die, it's possible that your wife will be able to claim some of this money as her legal share of your estate.
If you want to be sure that doesn't happen, you should ask for a divorce.
From what you say, your wife will probably be willing to oblige you. But if she hires a good divorce lawyer to make it happen, don't be surprised if that $600,000 comes up in the settlement discussions.
Please send your questions to Lynn@LynnBrennersFamilyFinance.com. I'm sorry I can't respond personally to every email. Questions are only addressed online.
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