Are you sure you're the beneficiary?

Community property laws can create unpleasant surprises

If your spouse has a retirement plan of his or her own, are you the beneficiary? Are you sure?

Federal law requires that for 401(k) plans and most types of retirement accounts, the spouse must be the beneficiary. But this is not true of all types of retirement plans. And depending on where you live, you could be in for an unpleasant surprise someday, especially if your spouse was previously married.

If you live in a community property state (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, or Wisconsin, and if the spouse signs a community property agreement, Alaska), your spouse or registered domestic partner or civil union partner owns half of what you have in your retirement account, assuming the money was contributed to the account while you were married. If you do not live in a community property state you can name anybody you want as the beneficiary of your IRA, even if you are married.

So let’s say you and your husband do not live in a community property state. He was previously married, and during that marriage, he opened an IRA and named his wife at that time as the beneficiary. It’s not unusual to forget details like that after a divorce. You would naturally assume the money in his IRA would be yours if he passed away. Imagine the ugly surprise when the ex-wife inherits the IRA instead of you. Before that happens, check the details and make the necessary changes.

Divorce and retirement accounts, the legal encyclopedia, advises that if you had a retirement account for which your spouse was the beneficiary and you subsequently divorced, contact the retirement account administrator. Don’t assume your divorce decree makes null and void the old beneficiary designation. And don’t rely on the laws in your state to keep your funds out of your ex-spouse’s hands. The fact is, according to, that ex-spouse scoundrel just might end up living high on your retirement money someday.

Here’s what happened to one Texas woman, as reported on

As a teacher, her retirement fund included a nice annuity. Because Texas is a community property state, her spouse was the beneficiary. Later they divorced, and she relied on the divorce decree, which stated he lost his right to her retirement account. Therefore she did not take action to change the beneficiary. Unfortunately, she did not notice that the divorce decree did not specifically mention the annuity. When she died, he was entitled to her annuity.

It’s up to you, not the plan administrator

You may have the most compelling story in the world. But the plan administrator is bound by the terms of the retirement account and is not supposed to figure out what is fair or who gets what. If you don’t want your ex-spouse to end up with your money, check to find out if he or she is the named beneficiary of your retirement accounts now while there is time.

The same is true for employer-provided life insurance. Even where state law automatically revokes the ex-spouse’s right to inherit, sometimes, these details slip through legal cracks. Take a look at what happened to the widow of this man.

After three marriages and a battle with leukemia, Warren Hillman died at the age of 66. Among his assets was a life insurance policy, in the amount of $124,558.03. Although he and ex-wife Judy Maretta had been divorced for more than 10 years, she filed for those benefits and got them.

The trouble with that was, Hillman was married to Jacqueline at the time of his death. Naturally, Jacqueline believed she should have gotten the proceeds of her late husband’s life insurance.

She took the case to state court to recover the benefits, but lost. Eventually she took her claim all the way to the Supreme Court. Unfortunately for the current Mrs. Hillman, the Supreme Court sided with the ex-wife, Judy Maretta, because she was the named beneficiary in Warren Hillman’s life insurance policy.

According to, long before a case goes this far, a state can step in and help when a decedent’s marital status has changed, but he or she did not remember to change beneficiaries. The Hillman case illustrates why you should never count on that.

What does Legalzoom recommend? Every three or four years check who your beneficiaries are to be sure they are still what you intend. The same goes for your estate planning documents. Certainly, if you make a major life change – marriage, divorce, or another heir is added to the family such as a grandchild, or if one of your heirs gets divorced and the departing spouse is in your estate plan or is a named beneficiary – rethink and revise the documents. If you don’t know how to do it, talk to your financial adviser, or if the plan is through your job, ask your human resources department.

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