When couples part ways in divorce, the assets part as well. It is crucial for you to take steps to make sure your assets go to your desired beneficiaries when you die. Update your will and any account beneficiaries, including bank accounts and Individual Retirement Accounts. Keeping an ex-wife named as your beneficiary on an IRA only complicates determining who inherits the account. Even if you are remarried at the time of death, your ex-spouse might still have a right to the money legally.
Even without a will, certain assets are exempt from probate. For example, bank accounts often list beneficiaries to be paid upon death. When an account owner dies, the named beneficiary is required to bring only a death certificate to the financial institution to collect the funds. The same is true for an IRA. With an IRA, the owner designates beneficiaries by completing a form and submitting it to the trustee. After the owner dies, the beneficiary submits the death certificate along with a simple form indicating the desired payout option.
If an ex-wife is still listed as a beneficiary on the retirement account, she may still be entitled to the money, even if the divorce settlement appears to make it clear she no longer has any interest in the account. Generalizing retirement accounts is not always enough. In the state of Texas, for example, an IRA owner cannot change the beneficiary without written consent from his spouse or a court order. Problems can arise if the divorce decree doesn't specifically mention the investment account and the former spouse doesn't consent to removing the name.
Waiver of Rights
It is not uncommon for divorcing spouses to sign a waiver relinquishing any rights to inherit survivor benefits. The waiver includes any benefits, including retirement benefits. If a waiver is signed, but the ex-spouse is still named as a beneficiary, the court determines who receives the money. In some court cases, the waivers have proven sufficient enough to override the beneficiaries. However, in other cases, courts have ruled the ex-spouses should inherit the assets.
Passing to the Estate
If the ex-spouse named as the beneficiary does not inherit the IRA, the account may pass to the estate of the deceased owner instead. The IRS requires the beneficiary to withdrawal all IRA funds by the fifth year following the owner's death, although the five-year rule doesn't apply if the original IRA owner dies after starting his required withdrawals. A will specifies who oversees the estate and who can access the money. If there is no will, the estate is subject to probate. In probate, the judge makes the final ruling on who inherits the assets. Probate can be a costly and lengthy process. It can become even more complicated if there is a dispute between heirs and potential beneficiaries.
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- E Price Financial: Watch Out for the Five-Year IRA Rule
- Seniors Resource Guide: Do You Know Who Your IRA Beneficiaries Really Are?
- Pennsylvania Family Law and Civil Litigation Blog: Ex-Spouse Entitled to ERISA Benefits despite Waiver, says Third Circuit
- The IRS Requirements for IRAs With No Beneficiaries
- How to Transfer an Inherited IRA
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- How to Add a Beneficiary for a Bank Account
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