Should You Modify Your Estate Planning Once You are Divorced?
According to a recent decision by the United States Supreme Court in Kennedy v. Plan Administrator for DuPont Savings and Investment Plan (2009), the answer is YES, at least with regard to an ERISA retirement plan. In Kennedy, the parties signed a Marital Settlement Agreement which provided that the wife waived all of her right, title, interest and claim in and to Husband's ERISA savings and investment plan. However, the husband never removed his ex-wife as the beneficiary of his ERISA plan. Upon his death, the ERISA savings and investment plan benefits were paid to the ex-wife, even though she had specifically waived her right to the benefits in the divorce settlement. The Supreme Court held that the plan administrator correctly paid the benefits to the ex-wife, because under ERISA, a plan administrator must act "in accordance with the documents and instruments governing the plan." Meaning that, regardless of what parties agree to in a Marital Settlement Agreement, if one of the parties fails to remove his ex spouse as a beneficiary, the ex-spouse is still entitled to benefits under ERISA.
Kennedy should serve as a lesson to those who have recently divorced that simply waiving rights to each other's estates may not be enough to ensure that an ex-spouse does not receive any benefits or property upon the death of the other.
With regard to certain benefits and property, a waiver in a Marital Settlement Agreement may be sufficient to divest an ex-spouse of any future rights to benefits, but in order to ensure that such a waiver is sufficient, it is important to consult with an attorney to make sure you have the correct "legal" language in your agreement. For example, in Life Ins. Co of N.Am. v. Cassidy (1984) 35 Cal.3d 599, the California Supreme Court held that where the wife waived any and all interest or future claims or demands of every nature and the right to receive in any manner any property of the other upon the death of the other, she was NOT entitled to life insurance benefits, even though she remained the beneficiary on the policy at the time of her ex-husband's death. The Court found the language used in that case was sufficient, but pointed out that general language in a Marital Settlement Agreement, without more, will not operate as a waiver of the right to receive benefits for an ex-spouse, whose name has not been removed as beneficiary.
If you are unsure about the effect of a divorce on your estate plan, call Mello & Pickering, LLP to set up a free consultation or one hour appointment at (408) 288-7800.