Retirement plan rules trump divorce decree
Posted by Rebecca Davis
The Supreme Court recently ruled that a retirement plan could follow its own rules even if they were inconsistent with the terms of a divorce decree. The decision is an important one, not just because of the legal precedent that it sets, but also because it serves as an important warning to anyone who has a retirement savings plan.
In Kennedy v. DuPont, the estate of William Kennedy argued that his retirement saving plan wrongly paid Kennedy’s ex-wife Liv the money in his retirement account after his death because she had given up any claim to it in the couple’s divorce agreement. However, the plan argued that, because William never removed Liv’s name as the sole beneficiary on his retirement account, it was obligated to pay Liv the balance upon William’s death. To learn more about Kennedy v. DuPont, read our summary of the case.
In its decision, the Supreme Court noted that the divorce decree did not direct the plan to change the beneficiary. Since the retirement plan provided a method for changing the beneficiary, and William, for whatever reason, did not remove Liv as the beneficiary, the Court ruled that the plan should follow its rules and pay the money to Liv.
The Kennedy case was interesting because so much of the oral argument focused on William’s intentions. Did he want to leave his retirement money to his ex-wife, or had he assumed that their divorce decree dissolved any claim she had to the money? In the end, the court sided with the plan and chose not to play a guessing game to figure out what William wanted.
This case should serve as a stark reminder to all workers: Make sure that no one has to play a guessing game to figure out where you want your retirement plan assets to go. Make sure you have filled out all forms, filed them with your plan - and that your wishes are understood by your plan and family.
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February 21st, 2009 at 6:57 pm
Sage advice and often overlooked Rebecca. I am reminded of a quip the John Roberts, now Supreme Court Chief Justice said when asked during his confirmation hearings before Congress that if they (Congress) wanted to stop the courts from interpreting the law, they should write better laws. In this case, the law was clear and the owner of the retirement plan thought one document had precedent over another. I hope everyone out there looks at their will at least every two years.