The Employee Retirement Income Security Act of 1974 (ERISA) is the federal law that governs most retirement and health plans offered by private employers. It does not cover government plans, most church plans, or IRAs.
Therefore, if requirements for retirement plans governed under ERISA are not met, you may find yourself in trouble down the road when it comes to who receives the money in your retirement account.
Full disclosure still comes first. Each spouse must disclose during the divorce process by way of written financial disclosure of all retirement accounts in which they have an interest. Proper financial disclosure of all assets owned by each spouse is required anyway in any action for divorce prior to approval of any written agreement or the Court hearing your case at a trial.
But disclosure and a signed settlement agreement are not the same thing as an ERISA waiver. Federal law (29 U.S.C. § 1055) gives a spouse survivor rights in many pension and 401(k) plans. A spouse can give up those rights only by a written consent that is witnessed by a notary or a plan representative and made within the time frame the plan allows. A waiver in a prenuptial agreement or a marital settlement agreement usually does not meet these rules on its own.
Timing matters. If you die while you are still legally married, your spouse may be entitled to a survivor benefit under your plan unless a valid spousal consent is on file. After the divorce is final, a former spouse keeps survivor rights only if a Qualified Domestic Relations Order (QDRO) gives them those rights (29 U.S.C. § 1056(d)(3)(F)). That is why any division of a retirement account should be carried out through a QDRO that the plan has approved, not just through the agreement or decree.
Another issue that frequently comes to pass is the failure to modify your beneficiary designation on your retirement account. Even if your final divorce decree finds that your spouse is not entitled to any interest in your account, if you fail to change the beneficiary designation on your account to someone other than your former spouse, the plan will generally pay the person named in its records. The U.S. Supreme Court has held that an ERISA plan administrator pays according to the plan documents, even when a divorce decree says the former spouse gave up the benefit (Kennedy v. Plan Administrator for DuPont Savings and Investment Plan, 555 U.S. 285 (2009)). South Carolina’s rule that divorce revokes a beneficiary designation in favor of a former spouse (S.C. Code § 62-2-507) also does not apply to most ERISA plans, because federal law overrides it (Egelhoff v. Egelhoff, 532 U.S. 141 (2001)).
In sum, it is important to do two things during the divorce process: make sure any division or waiver of retirement benefits is carried out through a QDRO or a plan-compliant spousal consent, not only through the Marital Settlement Agreement or final decree; and make sure you have changed the beneficiary designation on your retirement account so that your former spouse is not named as a beneficiary.
Failure to do these things could cost you, your estate or your other rightful beneficiaries money.
