Neglecting to update insurance and pension plan beneficiaries after life-altering events like divorce can have extreme effects. Experts say an "I'll get to it tomorrow" attitude can wreak havoc on estate asset division years after a divorce settlement.
For many people in New York and across the country, the thought of dealing with details like beneficiary changes during or just after the end of a marriage holds a low priority. Legal and financial advisors say that procrastination may result in a mistake that is discovered too late.
Courtrooms are filled with illogical stories of ex-spouses who have laid legal claim to the insurance policy benefits or 401(k) savings of a former partner. The blame for the seemingly irrational decisions usually traces back to an unchanged beneficiary form.
What many former spouses may not know is that a beneficiary designation often outweighs the words of a divorce settlement. Without a consistency between a divorce agreement and a beneficiary form, judges have handed over lifetime savings to old partners who were never meant to have them.
In one Supreme Court case, a woman who had been divorced from her husband for 20 years received hundreds of thousands of dollars in benefits from her ex's pension. The former husband died without changing the name of the beneficiary on his retirement account to his widow. The first wife had given up her right to the pension in the old divorce settlement. The court ruled that the provisions of the employer-sponsored retirement plan were clear and detailed regarding beneficiaries and overrode the divorce waiver. The widow lost $400,000 because her husband had not taken the time to review and change his beneficiary status.
Experts recommend taking the time to review beneficiary specifications of insurances and retirement accounts. Some policies and plans require the use of certain forms or methods to switch beneficiaries that disparate divorce settlements and even wills cannot change.
Money and legal specialists stress that beneficiary reviews require regular updating, especially following any significant life event like a birth, death, marriage, financial status change or divorce.
Source: marketwatch.com, "Is Your Ex Going to Inherit Your 401(k) Account? Are You Sure?" Oct. 28, 2011