When it comes to beneficiary designations, IRAs are more flexible than 401(k)s. If you don't want your estranged spouse to inherit your IRA, you can usually do something about it – even before you're divorced. Depending on how you handle the situation, however, your ex might still get a bite of its value, if not the entire asset.
Changing Your Beneficiary
Unlike 401(k)s, IRAs are not subject to the Employee Retirement Income Security Act, commonly known as ERISA. Under the terms of ERISA, a spouse has an automatic right to inherit the other's retirement benefits. The only way this can be avoided is for the spouse to waive his right in writing, and this must be done after the date of the marriage. This isn't the case with IRAs in most states. If you and your spouse are on the outs, all you have to do is change your IRA's beneficiary designation and he won’t inherit the account. This is assumes you named him as beneficiary in the first place. If you didn't, you don't have anything to worry about.
Community Property States
An exception to the rule regarding spousal consent exists in community property states, but there are only nine of them: Louisiana, Wisconsin, Idaho, Washington, New Mexico, Arizona, Nevada, California and Texas. In these states, both spouses equally own everything earned during the marriage, and this includes retirement accounts. In these jurisdictions, you must have your spouse's written consent to name someone else as beneficiary of your IRA if your divorce isn't final yet.
If your estrangement with your spouse ends in divorce, this usually terminates his right to inherit your IRA in most states, even if you never changed the beneficiary designation. This is another major difference between IRAs and ERISA retirement plans. As a practical matter, however, your spouse is probably entitled to a portion of the value of your IRA as part of the divorce. This has nothing to do with the beneficiary designation and everything to do with the fact that you might have earned a portion of the account's value during your marriage. If you didn't contribute to the account during your marriage, your IRA is your separate property and it's safe in a divorce. If you did, your spouse is probably entitled to half the marital portion. You can roll his portion over into an account in his own name and leave the balance of your IRA intact, naming a new beneficiary of your choice.
Your Estate as Beneficiary
Of the 41 states that are not community property states, all but Georgia bar you from disinheriting your spouse, so it's possible that your spouse could inherit some portion of your IRA's value if you die before your divorce is final. Georgia has neither community property laws nor elective share laws. Elective share laws let your spouse reject your will because he's not happy with its terms. In exchange, he can take a statutory share of your estate – at least a third if you have any children. If you don't have children, it could be more. If your spouse does this, and if you've named your estate as beneficiary of your IRA, the account contributes to the overall value of your estate. Therefore, he'd get a piece of its value.
- The Wall Street Journal: Family Feuds – The Battles Over Retirement Accounts
- Bankrate.com: Ex Still Beneficiary of Retirement IRA
- Elder Law Answers: Do Surviving Spouses Have a Right to a 401(K) or an IRA?
- Legal Information Institute: Elective Share
- Bedrock Divorce Advisors: Do You Live in a Community Property State or an Equitable Distribution State
- Patrick J. Hart: Retirement Plans in Divorce
- The Zucker Law Firm: State Law Differences Regarding Spousal Disinheritance