You must name your spouse as a primary beneficiary to your employer-sponsored ERISA retirement plan, including most 401(k) plans or pension plans. If you wish to designate a beneficiary other than your spouse, you must obtain your spouse’s written consent and be witnessed by a Plan representative or a notary public.
A spouse may limit consent to a specific beneficiary.
Premarital agreements entered into prior to marriage, like prenups, do not satisfy the spousal consent requirement. After you marry, you still have to acquire your spouse’s written consent to designate a different beneficiary. Otherwise, the designation of the non-spouse beneficiary may be ineffective.
The benefit of the pre-nuptial agreement is that your spouse is contractually obligated to sign the written consent.
Individual Retirement Accounts (IRA)’s and employer-sponsored welfare benefit plans, such as employer-provided life insurance, are different and you are allowed to name someone other than your spouse as a beneficiary. Therefore, 401(k) subject to ERISA may be rolled over into an IRA to avoid the spousal consent provision.
401(k) accounts not subject to ERISA include plans established by a government entity or church and thus you may designate a non-spouse beneficiary. Typically, only the named beneficiary to one of these accounts is entitled to receive or inherit the asset when the account owner dies.
However, these plans not subject to spousal consent, like other marital assets may be reachable when going through a divorce. Texas family laws on community property give your spouse an interest in your retirement account because the money contributed to the account was earned during the marriage. Therefore, even though your spouse may not need to give written consent to name a third party beneficiary, it’s always a good idea in all retirement accounts. There are exceptions to money contributed to the account before you were married.
Ex-Spouse’s Rights to Retirement Benefits
After your divorce is finalized, ensure you execute any documents removing your former spouse as beneficiary to all of your retirement accounts. Verify with the custodian of your account to determine if you have satisfied the requirements and proper approval is on file.
Otherwise, ERISA administrators will pay the plan benefits to the named beneficiary on file, regardless if you have a divorce decree or will designating a new beneficiary.
When going through a divorce, ensure the language in your divorce decree not only divests your former spouse of all interests in a particular account but also that as the account holder, you have the right to change the beneficiary of the account to comply with any statutory requirements.
Your estate and your heirs could be left with filing a lawsuit against your former spouse for breach of contract for claiming certain benefits in violation of the divorce decree.