Do I have to Change Beneficiaries After a Divorce Decree or Marriage Settlement Agreement that Decides on Ownership of Accounts, Insurance Proceeds, Etc.

When a marriage is being dissolved, the myriad of questions which must be determined include ownership or beneficiary status on things like retirement accounts, pensions, 401(k) accounts, life insurance, as well as stock and bond ownership, real estate title, ownership of other financial assets, etc.  So long as the assets are presented to a Master in a contested divorce, the Master should include distribution or the requirements for distribution in the order recommended to the Court to resolve the matter. 

But most divorces are resolved between the parties without going to a Master.  It is important that a competent attorney be involved in the drafting of a Marriage Settlement Agreement to make sure that all assets are properly listed and accounted for and that ownership issues are resolved or future benefits properly directed.  Signing the Marriage Settlement Agreement by itself is not the end of the story or the resolution of the problem.

Accounts should be put in the proper name.  Parties should change wills, estate plans, 401(k)s and pensions must be provided for.  Pensions can usually be resolved, even if payouts are not immediate, through a Qualified Domestic Relations Order (QDRO).  A QDRO must follow the requirements of the pension and most pensions will provide forms for QDROs.  The QDRO must be executed by the Court and served upon the pension agent and accepted to protect the beneficiary.  Important financial consequences on early distribution or the taxable impact of improperly transferring assets must also be understood.

All titles, deeds and any equity ownership should be legally transferred to the correct names.

Interestingly, the federal government has a law called the Federal Employees’ Group Life Insurance Act of 1954 (FEGLIA).  This Act deals with insurance for the beneficiary of the federal employee.  The U.S. Supreme Court recently decided a case, Hillman v. Maretta, in which it indicated that the FEGLIA law preempted a Virginia statute (Virginia being a state with many federal employees) which attempted to correct the improper designation of a former spouse if the designation occurred before the divorce.  The Virginia statute was ineffective with regard to the federal employee because the federal law preempted the area in which the Virginia statute attempted to deal.

This may raise another question in many people’s mind.  What should a divorcing party do to protect property during the divorce or separation?  This is the time before the Marriage Settlement Agreement or Master’s hearing but after a party has determined to terminate the divorce.  Typically, during divorce proceedings insurance may be required to be maintained in place.

Nonetheless, each legally competent party is capable and should consider making a will and provide, by will, for assets which are solely owned by that party while the marriage is valid but while the divorce is pending.

This, together with tax ramifications, is another reason why legal counsel is necessary in all divorce proceedings.