You just paid off the balance of the bill to your attorney and you are feeling good that your divorce is finally behind you. The last thing on your mind is probably setting up an appointment with your Human Resources administrator to modify the beneficiary designations on your 401 (k) or employer-provided life insurance plan.
While I understand that the nuisance of going down to HR is sometimes as painful as a dentist visit, it is extremely important that you conduct this exercise as soon as possible after your divorce decree becomes final.
I say this because earlier this year, the United States Supreme Court unanimously held that under the Employee Retirement Income Security Act (ERISA), failing to update your beneficiary designation with the plan administrator will enable a previously named beneficiary from getting their allotted portion of your hard earned pension, 401 (k) or life insurance proceeds. This ruling may seem like a hardline approach by the Court. However, without a written change in beneficiary notification, the true intent of the deceased individual is difficult to prove.
Under New Jersey law, during a pending litigation, an individual cannot modify their existing insurance or retirement account beneficiaries (assuming they are allotted to their spouse and children) until the entry of a Final Judgment of Divorce. Being that retirement assets acquired during the marriage are more than likely subject to equitable distribution, their division is often identified in a Marital Settlement Agreement and a subsequent Qualified Domestic Relations Order (QDRO) is entered to distribute the asset. Identified distributions in the Marital Settlement Agreement will be protected against the payor’s estate if the payor dies before the allotted distribution. However, a scenario could arise where the payor didn’t change his or her beneficiary designations before their death (post-judgment) and the ex-spouse will have a legitimate claim to receive their equitable distribution share, along with their designated beneficiary portion.
Being that the changing your beneficiary designations immediately upon your divorce will not have an adverse impact on the ability to distribute the asset via a QDRO, there is no reason not to make this a top priority after your divorce becomes final. Do whatever you have to do to remember to modify your beneficiaries- make a mental note, write a reminder to yourself on a stick-it tab or hopefully your attorney will remind you at the conclusion of your matter. Either way, do not let this important distinction fall by the wayside. A simple check of a box on a Human Resources form could have an enormous impact on your love ones’ futures.