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Probate estate sues for retirement plan assets and loses

If, as part of the divorce settlement, one spouse waives her rights to the pension plan of the other spouse, what happens if the other spouse fails to change his plan beneficiary designation? Does the waiver divest the ex-wife of her interest in the pension benefits?

The United States Supreme Court recently addressed these questions in a very important case that affects a lot of people right now and will affect even more as time goes on.  The case is based on a common situation.  William Kennedy married Liv Kennedy and worked for Dupont.  William named Liv as the designated beneficiary of his Dupont savings and investment plan (SIP) which was William's pension plan.  Years later William and Liv got divorced.  Their divorce decree divested Liv of her interest in William's SIP.  William had the ability to change his designated beneficiary at any time.  The SIP plan document directed that the assets go to the plan participant's estate if there is no designated beneficiary.

William died.  He never changed his designated beneficiary even though he was divorced from Liv.  He also did not name a contingent beneficiary.  William's daughter, as the executor of his probate estate, asked the SIP plan administrator to distribute the assets to the probate estate.  The plan administrator declined saying the probate estate was not the correct beneficiary and paid out the plan assets to Liv.

The probate estate sued and the case made its way to the Supreme Court.  The Supreme Court ruled against the executor and the probate estate.  The ex-wife was the correct beneficiary they ruled.  The Supreme Court explained that the plan rules were known to William and he could have changed his beneficiary designation at any time.  He didn't.  He left his ex-wife as the designated beneficiary even though his divorce decree divested her of an interest in the SIP. The ex-wife was the correct beneficiary under the terms of the plan because she was still the designated beneficiary at the time of Willilam's death.

The obvious lesson to learn is change your designated beneficiary to whomever you want to inherit your pension plan.  Do not rely on any other document to make a change for you.

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