I often remind my clients that just because the divorce is ordered it does not mean that the work is done. Clients must revise, at a minimum, estate plan documents, such as their will, health care proxy and durable power of attorney, as well as update beneficiaries on life insurance, pension plans and retirement vehicles. Merely because you are divorced and your separation agreement or court order deals with these assets, that does not mean the result will be the one you anticipated, negotiated, and/or bargained for.
In a landmark case of Kennedy v. Plan Administrator for Dupont Savings and Investment Plan, the plan administrator distributed the benefits of its deceased employee’s retirement plan to his ex-wife. Why? Well, the employee husband participated in a retirement plan through his job and named his then wife as the beneficiary. They eventually divorced and as part of the settlement the ex-wife waived all rights to the husband’s retirement plan benefits. However, the husband never changed the named beneficiary on his retirement plan. When he died, the plan administrator paid the benefits to his now ex-wife, in accordance with the terms of the plan.
In this case, the man’s daughter sued the plan to recover the money and the Supreme Court, in a 9-0 ruling, found the plan administrator had acted correctly. The Court’s rationale was as follows:
The plan document clearly spelled out the procedures for designating and changing beneficiaries. The deceased had the right and the opportunity to name a different beneficiary. His failure to do so was not compensable.
- The divorce decree was not a QDRO (qualified domestic relations order,) so although the ex-wife had waived her rights to the benefits in the decree, it was not binding upon the plan or the plan document.
- The plan administrator by law is obligated to follow the terms of the plan document, and in this case, that required distribution of the funds to the ex wife in accordance with the beneficiary designation on record with the plan.
For all of the above reasons, the plan administrator was not found liable for the distribution, but that certainly did no help the daughter or other heirs of the deceased.
By: Julie A. Dialessi-Lafley, Esq.
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