Changes in family and marital status are major events in anyone’s life and can have far-reaching effects on your financial and property interests. Below are a few points to keep in mind regarding your beneficiary designations as life changes:
Marriage:
• Under most employer-sponsored retirement plans, if the employee dies, his or her surviving spouse automatically receives all death benefits. If you instead wish to name a child or other non-spouse beneficiary to receive such death benefits, you will likely need to submit both a new beneficiary designation form and a waiver/consent from your spouse after the date of the marriage to effectuate your wishes and bypass these default rules.
Divorce:
• Under Pennsylvania law, a divorce automatically revokes a pre-divorce beneficiary designation of a spouse on a life insurance policy, annuity contract, pension or profit-sharing plan, provided that such designation could have been, but was not, revoked after a divorce. No such revocation will occur, however, if the wording of the beneficiary designation, written property settlement agreement, or court order evidences an intent to maintain the former spouse as beneficiary after a divorce. Best practice dictates a new beneficiary form to be submitted after the divorce is finalized despite the fact that the beneficiary named prior to the divorce remains the same.
• On the other hand, if your retirement plan is an ERISA-governed plan (as are the most common retirement plans), any pre-divorce beneficiary designation of a spouse will remain effective unless and until you update your beneficiary designations. Therefore, it is imperative that your beneficiary designations be updated immediately upon divorce to prevent such a result. ERISA, also known as the Employee Retirement Income Security Act, is a federal law that governs most employer-sponsored plans, such as 401(k)s, pensions or employer-sponsored group life insurance, and has been held by courts to preempt the Pennsylvania state law mentioned above. As a result, Pennsylvania’s automatic revocation of a former spouse designation may not apply to you if your retirement account is an ERISA-governed plan. Instead, it may be necessary for you to contact your plan administrator or HR representative in order to determine what steps must be taken to effectively remove your former spouse as beneficiary, should you wish to do so.
• Due to the frequency with which this issue arises in Pennsylvania, in November of 2022, then Governor Wolf signed into law a requirement that divorce decrees include an express warning to the parties to either re-affirm or update their beneficiary designations. The new law goes into effect on May 2, 2023.
If you have recently married or divorced, or if such an event is in your future, a legal review of your Will, beneficiary designations and property rights is essential. The attorneys in Stock and Leader’s Estates Group are here to assist in protecting your intended beneficiaries and providing you with peace of mind that your true intentions will be carried out. When Decisions Matter, contact our experienced Estate Planning attorneys.