Lynn Brenner's Family Finance

My Husband's Ex Is Still His Named Beneficiary!

Q: My husband of seven years told me that he added me as his beneficiary after we were married. But I've learned that his ex-wife is still listed as his beneficiary. Can this be changed, and if so, can it be back-dated from the date of our marriage license?

 

A: Beneficiary designations never have to be back-dated. The only beneficiary that matters is the one listed on the account when its owner dies.  And yes, of course he can change his beneficiary designation to name his current spouse!

You don’t say what kind of account this is. If it’s an Individual Retirement Account, he can name any beneficiary he wants unless you live in a community property state. (However,  if you live in a community property state, as his current wife you may already own half of his IRA.) 

If you’re talking about an account in an employer-sponsored retirement plan, such as a 401(k), as his current spouse you're entitled by federal law to be his beneficiary. He can't name anyone else unless you relinquish that entitlement in a written statement kept by the plan administrator. (More about that here.)

But it's up to your husband to update his 401(k) beneficiary designations. Given his track record on completing this task, you may want to drop a note to the 401(k) plan administrator asking them to make sure he changes his 401(k) paperwork to reflect the fact that you are the current Mrs. Jones.

For more information about the legal nightmare created for their heirs by people who divorce and remarry without updating their 401(k) beneficiary designations, see my earlier posts here and here.) 

Please send your questions to [email protected].  I'm sorry I can't respond personally to every email. Questions are only addressed online.

(c) Lynn Brenner, All Rights Reserved

Still Working at 70 1/2 -- Can I Contribute to 401(k)?

Q: I've reached the age where I must take required minimum distributions (RMDs) from my IRAs, and I'm doing that this year. I'm still working part-time, and I have funds in my employer's 401(k) plan. It's my understanding that I don't have to withdraw these funds until I quit working, when I'll roll them into my existing traditional IRA.

Am I breaking the rules by continuing to contribute to the 401(k)? What about not taking an RMD from this account?

I haven't received anything from the plan stating that I'm required to take one, as I have from my IRAs. I just don't want to end up with a big tax bill at year-end or at tax time next April! --PD via email

 

A: Not to worry. You're not breaking any rules.

You must start taking annual RMDs from your retirement accounts no later than April 1 of the year after you turn 70 1/2. That includes your IRAs and any 401(k) accounts you still have in the plans of former employers -- but there's an exception for the 401(k) plan of your current employer.

Even after 70 1/2, you're not required to take any distributions from the 401(k) plan sponsored by a company you still work for unless you own 5% or more of the company.

And there's no age limit for making contributions to your current employer's 401(k) plan.

Please send your questions to [email protected].  I'm sorry I can't respond personally to every email. Questions are only addressed online.

(c) Lynn Brenner, All Rights Reserved

Does Soon-To-Be Ex Have Right to My 401(k)?

Q: My husband and I were married in May 2008 and I filed for divorce a month and a half ago. My 401(k) was set up long before our marriage, with my mother and son listed as beneficiaries. I never changed this. We live in Indiana. Is he entitled to half of the gains or contributions, or anything, since he was never listed as a beneficiary? -- FD via email

 

A: He is entitled to claim a share of the 401(k); but since you were only married for four years, his share is very unlikely to be 50%.

A marriage is an economic partnership. Generally speaking, assets acquired during your marriage are considered marital assets no matter whose name they are in. There are some exceptions to that rule. In most states, for example, if you inherited an asset during your marriage and you kept it segregated from your other accounts, it would be your sole property. An asset that you owned before your marriage and kept segregated from your marital assets would also be considered your sole property.

But all the money you've earned during your marriage is a marital asset and so are your 401(k) contributions and 401(k) earnings during that time. The same is true of your husband's earnings and retirement accounts.

In a community-property state, marital assets are split 50/50 in a divorce. But Indiana is an equitable distribution state, which means that marital assets are divided 'equitably'. Equitably means fairly. In a marriage that lasted 20 years or longer, a 50/50 split is usually considered fair; but in a short-lived marriage, the division would be ... more equitable. (Who decides what's fair? The divorce court.).

Your 401(k) beneficiary designations are irrelevant to how the account is divided in a divorce. But you should know that the federal law that governs 401(k) plans says your spouse is entitled to be your beneficiary unless he or she signs a waiver of that right. So unless your husband signed such a waiver, he is your 401(k) beneficiary by federal law, regardless of the fact that you didn't change your beneficiary designations.

Please send your questions to [email protected].  I'm sorry I can't respond personally to every email. Questions are only addressed online.

(c) Lynn Brenner, All Rights Reserved

 

 

 

Married But Separated: Will My Not-Quite-Ex Get My IRA?

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.

Here's why:

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 [email protected].  I'm sorry I can't respond personally to every email. Questions are only addressed online.

 (c) Lynn Brenner, All Rights Reserved