The Employee Retirement Income Security Act of 1974 is federal law that guides the administration of all employee-issued retirement accounts and health plans for private individuals.
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 is a direct beneficiary of your retirement account.
First, there must be full disclosure to your spouse during the divorce process by way of written financial disclosure of all retirement accounts in which you 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.
Second, there must be a knowing and voluntary written waiver of an interest or claim in the retirement account.
If these two requirements are not met, there is no appropriate knowing and intelligent waiver of your retirement account by your spouse as required under ERISA. As a result, your spouse could be entitled to a benefit under your plan equal to what would have been payable upon your death. Once your spouse makes a claim on the retirement account at your death, the retirement plan has no choice but to pay as required under the plan.
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 beneficiary nomination trumps the divorce decree and your former spouse would be entitled to make a claim on your account as beneficiary.
In sum, it is important to do two things during the divorce process: ensure that appropriate disclosure and waiver language has been included in any written Marital Settlement Agreement or final decree; and, ensure that you have modified your beneficiary designation associated with your retirement account so that your former spouse is not nominated as a beneficiary.
Failure to do these things could cost you, your estate or your other rightful beneficiaries money.
