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Haven’t Gotten Around to Changing Those Beneficiary Designations? A Word of Caution

Could life insurance or pension benefits meant for you go to a spouse from a previous marriage instead? A recent U. S. Supreme Court ruling (Egelhoff v. Egelhoff) makes this a potential cause for concern.

During the time David and Donna Rae Egelhoff were married, Mr. Egelhoff had named his wife beneficiary of his company life insurance policy and pension plan. Two months after they were divorced, and before Mr. Egelhoff had gotten around to changing beneficiary designations, he was killed in an automobile accident.

The Egelhoffs lived in the state of Washington. Washington, like many other states, has a law that automatically removes a spouse as beneficiary upon divorce. These plans, however, were governed by the Employee Retirement Income Security Act of 1974 (ERISA), a federal law specifically intended to protect such benefits. It was not clear which law applied and whether his ex-wife might still be entitled to these benefits.

A state judge ruled for Mrs. Egelhoff, but an appeals court and the Washington Supreme Court reversed and said that Mr. Egelhoff’s children from his previous marriage should receive the benefits, not Mrs. Egelhoff. Mrs. Egelhoff appealed. Despite Mr. Egelhoff’s apparent intent, the U. S. Supreme Court has recently ruled in her favor. Since most retirement plans and company life insurance benefits are covered by ERISA, the effects of this ruling are far-reaching.

A word of caution: To avoid any ambiguities, beneficiary designations should, if possible, be changed when marital problems arise and certainly no later than the date the divorce is finalized. Even if a settlement agreement or divorce decree specifically names the intended beneficiaries of individually-owned insurance policies or of plans not covered by ERISA, the designated beneficiaries could still wind up in an expensive and prolonged fight with an insurance company.





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