Divorce can be a long process that requires attention to financial and legal details. After spending time negotiating asset division, many people overlook the need to update beneficiary designations on essential documents. This step is critical because an ex-spouse could still inherit significant assets without it, even if the divorce agreement is clear about who should get what and who waives what.

Which Documents Require Beneficiary Designations?

Many financial documents require beneficiary designations, and each should be carefully reviewed after a divorce. The most common documents that use beneficiaries are retirement accounts like 401(k)s, IRAs, and pensions. These do not pass through probate because they go to the named beneficiary. This means that if an ex-spouse is still listed, they may inherit the account despite a divorce settlement stating otherwise.

Life insurance policies also depend on named beneficiaries. Employer-sponsored plans and private life insurance policies follow the listed designation, regardless of a will or other instructions. An ex-spouse could receive the entire payout if the life insurance beneficiary remains unchanged.

Bank and investment accounts also sometimes have beneficiary designations, often called Payable on Death (POD) or Transfer on Death (TOD) designations. These instructions allow the funds to pass directly to the named individual upon death, bypassing probate. Other accounts with these designations include annuities and brokerage accounts. . After divorce, you must update all accounts with these designations to match your wishes.

The Dangers of Not Changing Them

Failing to change your beneficiary designations after divorce can lead to unintended results. Under federal ERISA law, retirement plans like 401(k)s and employer-sponsored life insurance are governed by federal rules, which often means they follow the beneficiary designation on file rather than state divorce laws or a divorce agreement. For instance, if a 401(k) or employer-sponsored life insurance policy still has the ex-spouse listed as the beneficiary, the assets may go directly to that person, even if the divorce decree specified a different arrangement. 

Federal law overrides state law in these cases, which means that without updating the beneficiary designation, an ex-spouse could still inherit these funds. Aside from retirement accounts, other assets like POD or TOD bank accounts follow beneficiary designations. This is important because even if the divorce settlement specifies how assets should be divided, a named beneficiary on a financial account or policy can override those terms. This step of updating beneficiaries is often missed, leading to situations where assets end up with the ex-spouse, contrary to the intentions set forth and agreed upon. Another factor to consider is that some divorce settlements or agreements may require one spouse to maintain life insurance for the benefit of children or the other spouse. Reviewing these obligations with an attorney to confirm that the correct beneficiary is listed on the policy is essential. Failing to update this information could result in complications or unintended consequences for both parties.

Get Compassionate Legal Support 

Divorce marks a time of transition, and updating beneficiary designations on all financial documents is a necessary step in securing your wishes. To make sure your accounts reflect your current plans, contact the Law Office of Wendy Meadows for a consultation. We can guide you in making these essential updates, protecting your assets, and helping you confidently move forward.