Divorced? Is your Retirement Plan Beneficiary Really Who You Think it Is?

By: Mary Anne Cody

This is not a typical topic for a blog post during a holiday week, but nonetheless it is an issue of which we should all be aware.

Going through a divorce can be analogous to the loss of a loved one. The emotional side-effects can be very difficult and the division of assets can be daunting. The negotiation of a QDRO (qualified domestic relation order, the document which directs the Plan trustee to divide the retirement account) is often yet another skirmish in the battle that is a divorce. Once the dust has settled and the divorce order and QDRO have been finalized, many people forget to take the final step: removing his or her former spouse as beneficiary of the retirement account.

Many people, including potential beneficiaries and even professionals, are often broadsided by the “plan documents rule”. The plan document rule provides that the plan’s documentation of beneficiary will trump the divorce documents. In other words, the former spouse could still be the beneficiary, even though all rights were waived in the divorce. In 2009, the United States Supreme Court bolstered this rule in Kennedy v. DuPont Savings and Investment Plan; the Supreme Court held that the Plan Administrator must pay plan benefits to the participant’s named beneficiary, his ex-wife, as required by the signed plan documents. The Court concluded that the ex-wife’s waiver of these benefits contained in the Divorce Decree was correctly disregarded by the Plan Administrator. When Mr. Kennedy passed away in 2001, his surviving child requested the Plan Administrator pay over the pension paid to her. The daughter was very surprised to find out that the waiver of plan benefits in the Divorce Decree was overruled by the previously designed plan beneficiary.

The easiest way to avoid the plan document rule is, that immediately upon divorce, all plan participants must request and complete new plan beneficiary designation forms.

If a family finds itself in a position similar to the Kennedy family in the 2009 Supreme Court case, they should have a professional examine their specific status. There may be some narrow exceptions to the plan document rule and strategies which could be utilized to attempt to avoid plan benefits to an unintended recipient, such as a former spouse.

If you would like more information on QDROs, please see the earlier post by Jillian McGuire with an overview on the basics.


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