Second and third marriages are common these days. Sometimes parties protect their premarital 
assets with a prenuptial agreement to provide for distribution of their separate assets to children of a prior marriage. But sometimes, despite best intentions, a desire to make one's children the beneficiaries of the proceeds of a 401k retirement plan by naming them as beneficiaries can lead to an unintended result and the surviving spouse will get the proceeds when the Participant dies. The reason is that the beneficiary form is trumped by federal ERISA rules. Under ERISA, to avoid distribution of a retirement plan to a surviving spouse, in addition to naming his children as the beneficiaries, the Participant must obtain a written waiver of rights from the new spouse and file that with the Plan Administrator.
In
Cajun Industries vs. Robert Kidder et al, a U.S. District Court in Louisiana ruled that, under the terms of the participant's plan, a spouse's right to plan assets is vested immediately upon marriage. The Participant had not obtained a spousal waiver, and therefore, the default plan beneficiary was the participant's spouse, despite the fact that the decedent's spouse was not the named beneficiary. In this particular case, the spouse inherited the 401(k) after just six weeks of marriage.
To read more about this informative case, read "
Beneficiary Battles: Consider converting a 401(k) to an IRA before a second marriage if the new spouse isn't the desired heir," by Ed Slott. July 1, 2011
Ed Slott, a CPA in Rockville Centre, N.Y., is an IRA distribution expert, professional speaker and author of several books on IRAs. He's also created programs to help financial advisors become leaders in the IRA marketplace. For more info, visit his website at irahelp.com.
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