Taking Care of Your 401(K) or Pension Plan After Divorce … And Before Remarriage

The divorce is finally final.

So, what’s next?

A divorce party? A trip?

Well, you may want to let loose, but you still have some unfinished business to tend to.

Financial housekeeping.

Such as changing your designations of beneficiary on your various payable on death assets and accounts, including 401(k)s and pension plans.

Even if you’ve already updated your will to eliminate your spouse as a beneficiary.

This type of account or asset, called nonprobate, does not pass under your will.

In most cases, your designated beneficiary inherits them.

Even if you have divorced since designating your now ex as your beneficiary.

Having said that, it’s also important to be aware that federal law, specifically ERISA, supersedes any attempts to disinherit a spouse of a qualified pension plan or 401(k).

That includes a second or third spouse.

So, if your intention is that someone other than, say, your second spouse inherit your pension / 401(k) (such as your childen), your new spouse must execute a spousal waiver and consent. Period.

A spouse can contractually commit to execute a waiver in a divorce settlement agreement and in a prenuptial agreement.

If that is too much of a hassle or doesn’t “feel good”, you can roll your retirement funds into an IRA, which is not regulated by federal ERISA law. Then all you have to do is change your beneficiary designation.

Read more in this Forbes piece: Don’t Let Your Ex-Husband Inherit Your 401(k). Or your Ex-Wife.