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Court Ruling: Postnup Does Not Waive Spousal Rights To 401(K)

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(Photo credit: The Library of Congress)

In last week’s article, I wrote that many women begin the divorce process under the false impression that they are not entitled to a share of their husband’s 401(k) or other retirement plans. The truth is that, in most states, money invested in retirement plans by either spouse during the marriage is generally considered marital property. As such, it is subject to division in divorce, according to applicable state laws.

But what would happen if you had signed a pre- or post-nuptial agreement in which you agreed not to be the beneficiary of your husband’s retirement plan? Wouldn’t that mean you had no claim to it, anymore?

Well, the U.S. Court of Appeals for the Eighth Circuit has added a new dimension to that discussion. In a recent decision, the Court ruled that a post-nuptial agreement in which each party expressed “irrevocable consent” to a change of beneficiary of the other’s retirement plan did not, in fact, constitute a waiver of the spousal right to benefit from such plans. (The husband had made his parents the beneficiaries of his retirement plan; in divorcing, the wife refused to waive her spousal rights. The Court ruled in her favor.)

The Court’s reasoning was reportedly based on the Employee Retirement Income Security Act of 1974 (ERISA), the federal law that governs pension plans in private industry. ERISA provides that a spouse has the right to be the beneficiary of a retirement plan unless (s)he specifically elects to waive that right. What’s more, the requirements for waiving spousal rights go above and beyond executing a postnup.

In other words, you can say in your postnup that you “intend” to waive your spousal right to the retirement plan, but actually doing so involves other actions, such as having your decision witnessed by a plan representative. If you don’t take these additional steps, then, according to the ruling, your rights have not been waived – and, postnup notwithstanding, you are still entitled to part of that retirement investment if you divorce.

The same reasoning could apply to a prenup. A prenup is signed before you are married – often weeks or months before --and then the agreement is put away in a drawer. However, regardless of what a prenup says, you cannot waive your spousal rights since you are not yet a spouse. Only after you’re married and you’ve become a spouse can you complete the “paperwork” to waive your spousal rights . . . and with the excitement of the wedding, honeymoon, moving into a new place, etc., completing that kind of paperwork is often  forgotten, which means, of course, that the spousal rights were never waived.

The U.S. Court of Appeals ruling has tremendous implications for the efficacy of prenups and postnups as applied to retirement plan benefits. I’m certain that family law attorneys are sitting up and taking notice. Be aware, though, that in some state courts, rulings on similar cases have gone the other way on this issue, even allowing for spousal rights to a retirement plan to be waived before you’re a spouse, i.e. in a prenup.

So, the legal question seems to boil down to whether or not spouses, or spouses-to-be, can opt out of the provisions of ERISA through pre- or postnuptial agreements. And the bottom line is that, if your status as a beneficiary of your husband’s retirement plan is (or may be) in question due to a prenup or postnup, it is critically important that you consult a knowledgeable attorney for the answer to that question. Ask your attorney what the body of case law says about this issue in your state, and how the federal Court of Appeals decision affects your specific case.

At the very least, the recent Court ruling shows that waiving spousal rights to a retirement plan is not straightforward – and that, on the other side of the coin, denying spousal rights to a retirement plan isn’t straightforward, either. Divorcing women, even if they have signed prenups or postnups, should never assume they have no right to a share of their husband’s 401(k) or other retirement plan.

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Jeff Landers is the author of the new book, Divorce: Think Financially, Not Emotionally – What Women Need To Know About Securing Their Financial Future Before, During, And After Divorce.

All articles/blog posts are for informational purposes only, and do not constitute legal advice. If you require legal advice, retain a lawyer licensed in your jurisdiction. The opinions expressed are solely those of the author, who is not an attorney.

For further information, please go to our website at: http://www.BedrockDivorce.com or email Jeff at Landers@BedrockDivorce.com.