Divorce Decree Language Trumps IRA Beneficiary Designation

Divorce decrees are not neutral documents. A key feature of every divorce decree is spelling out in black and white who has what rights to certain property. Since your rights to certain property are going to be restricted or protected by the language used in the divorce decree, it is a good idea to be positive the exact language achieves your goals. In one recent case, a well drafted divorce decree saved an IRA from going to an ex-wife. Let’s take a look.

The husband in this case opened an IRA and designated his wife and father as beneficiaries of the IRA before he and wife were married. The husband and wife got married. Four years later they were divorced. The husband later died and the bank holding the IRA refused to distribute the funds to the husband’s estate (husband’s father had also died) because the wife was still listed as beneficiary of the IRA.

What is a bank to do?

The beneficiary designation on the IRA still listed the wife as a beneficiary of the IRA. However, the divorce decree not only awarded the IRA as the husband’s separate property, it went further. It included specific language that also divested the wife of any claim to the IRA.

The Ruling

Because the property agreement portion of the divorce decree was agreed to by both parties it is interpreted under the law of contracts. The specific language used in the decree terminated not only the wife’s community property interest in the IRA, but also any unmatured claim to future proceeds she might have received as a beneficiary. As a result, the court awarded the IRA to the husband’s estate and not to the ex-wife. Without the correct language in the divorce decree, the court may very well have reached a different conclusion and allowed the wife to keep her interest in the IRA as a beneficiary.

As I said in the beginning, the language in divorce decrees is not neutral. For each piece of property or other legal right one person is being granted rights and the other person is being denied rights. With so much at stake, make sure you get it done right.

Download my free guide to Divorce in The Woodlands for some additional information; and remember to consider the unique benefits of a Collaborative Divorce if children are involved.

Click Here to Leave a Comment Below

Leave a Comment: