Divorced Individuals and Retirement Plan Beneficiary Designations

Dan Penning Commentary: 

The facts and circumstances of the Kennedy case as discussed below in the quoted Detroit Free Press article, represents an oversight and mistake made far too often by divorced individuals who maintain retirement plans. Far too often, divorced individuals do not pay attention to the various beneficiary designations that may be present on their retirement plans. The husband’s divorce attorney in the Kennedy case should have advised his client to remove his ex-wife as the beneficiary of the husband’s retirement account. Based on the fact that the individuals were divorced, no consent form would have been required under federal law for the husband to remove his ex-wife as a beneficiary. Divorced individuals should give particular attention to beneficiary designations, not only on their retirement accounts, but also on life insurance policies and other accounts where a former spouse may remain listed as a beneficiary. It is imperative when a divorced individual is reviewing his or her estate plan, that these beneficiary designations be checked to make sure that the proper designation has been made to avoid the disaster which occurred in the Kennedy case.

From the Detroit Free Press:

Outdated papers ruffle family in case before Supreme Court
Daughter: Dad's retirement is mine

BY MARK SHERMAN • ASSOCIATED PRESS • October 8, 2008

WASHINGTON -- If William Kennedy had updated all his financial paperwork in accordance with his divorce decree, chances are his daughter would not have been at the Supreme Court on Tuesday fighting for the $402,000 she says should be hers.

When Kennedy died in Texas in 2001, his employer, DuPont Co., looked at the form on which he designated the beneficiary of his retirement account and saw the name of his ex-wife, Liv Kennedy.

So, despite divorce papers in which she waived her right to the proceeds from that account and over the objection of her daughter Kari Kennedy, DuPont paid Liv Kennedy the money.

"My father expressly did not want my mother to have another red cent after their divorce was final" in 1994, Kari Kennedy said in an interview. "There's no doubt in my mind that he wanted me to have everything he had."

Kari Kennedy, 32, is a social worker who lives in Lumberton, Texas, with her husband and two children.

Her mother sought the divorce and received money, jewelry, furniture and an 11-year-old Mercedes-Benz. The Kennedys were married 22 years. William Kennedy worked for DuPont for 34 years and died three years after he retired.

The dispute over his retirement money ruptured the relationship between mother and daughter, Kari Kennedy said.

"I did reconcile with her, but we never agreed on this point," she said. Liv Kennedy returned to her native Norway shortly after the divorce and died there last year.

Not for nothing do financial planners and advice columnists urge people to keep their beneficiary designations up-to-date.

The main federal law on employee benefits requires companies to strictly follow their workers' wishes as reflected in their designations. Spouses are protected from attempts to cut them out of death and retirement benefits.

Divorce papers, by themselves, aren't always enough to override the earlier designation of a beneficiary.

That is the situation DuPont said it encountered when trying to determine whom to pay after William Kennedy's death.

"Marital dissolution comes up all the time," said Mark Levy, DuPont's lawyer. "Congress wanted bright-line rules that could be easily applied."

Kari Kennedy, designated by her father to handle his estate upon his death, sued DuPont, and a federal judge found that the waiver Liv Kennedy signed as part of the divorce meant what it said and ordered DuPont to pay William Kennedy's estate $402,000.

The 5th U.S. Circuit Court of Appeals, based in New Orleans, disagreed with the judge and said DuPont correctly gave the retirement savings to Liv Kennedy because she remained her ex-husband's designated beneficiary.

The justices appeared sympathetic to Kari Kennedy, but also concerned about tinkering with the rules.

DuPont's retirement plan says "that if you want to change the beneficiary, here's how you've got to change the beneficiary," Chief Justice John Roberts said.

"We just have no way of knowing" what William Kennedy intended, Justice Ruth Bader Ginsburg said.

Kari Kennedy said her father made his intentions clear. But she agreed that if he had updated all his forms, "we wouldn't be here."

The case is Kennedy v. Plan Administrator, 07-636.

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Dan A. Penning
Farmington Hills and Suttons Bay, Michigan
231-271-4500