The Importance of Updating Beneficiary Designations After A Divorce

I recently posted about the importance of regularly reviewing and updating beneficiary designations for all of your financial accounts, retirement accounts, pensions and life insurance policies.  The recent United States Supreme Court case, Kennedy v. Plan Administrator for DuPont Savings and Investment Plan, 497 F.3d 426 (2009),  highlights how critical it is to keep your beneficiary designations up to date.

William Kennedy participated in his employer’s pension plan.  In 1971 William married Liv and in 1974, William updated his beneficiary designation to name Liv as beneficiary of his pension.  William did not name a contingent beneficiary.  In 1994 the couple divorced.  Under the terms of the divorce decree, Liv waived all rights to the pension.  After the divorce, William updated beneficiary designations on other assets to name his daughter as beneficiary, but he neglected to update the beneficiary designation on his pension.

Upon his death, Williams daughter, Kari was appointed as executor of his estate.  Kari requested that the administrator of the pension deliver the funds to her, but the pension administrator refused and instead issued the funds to Liv in accordance with the beneficiary designation.  The Supreme Court upheld the pension adminsitrator’s actions despite the waiver of rights contained in the divorce decree.  The Court did indicate that a Qualified Domestic Relations Order (QDRO) would have been effective in eliminating the spouse’s rights.  Nonetheless, this decision indicates the weight of importance placed on beneficiary designations and highlights the need to keep designations up to date as part of your comprehensive estate plan.

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