A recent Rhode Island case should send a clear message to those getting divorced that they need to go through all their insurance policies, retirement accounts, and estate planning documents to see who they have listed as their beneficiary.
If they see that their soon-to-be ex-spouse or new ex-spouse is still listed and they don’t want that person to receive the benefits should they pass away, they need to make that change right away.
In the case in question, Transportation Security Administration employee Michael Tarasevich enrolled in the Thrift Savings Plan (TSP) offered to federal workers. He named his then-spouse Pamela as his beneficiary.
The marriage eventually ended in divorce. During divorce proceedings, Pamela gave up any claim to Tarasevich’s retirement account.
But the story didn’t end there. Tarasevich never completed the necessary paperwork to change the plan’s beneficiary designation to reflect his divorce.
More than a decade later, he died unexpectedly.
His estate requested that it receive the funds from his retirement account, but the government denied the request because Pamela was still listed as sole named beneficiary. The estate challenged the denial in U.S. District Court, but a federal judge agreed with the government and threw out the lawsuit.
Specifically, the judge found that the Federal Employee Retirement System Act determines how a TSP participant’s retirement account benefits are distributed. He also noted that the first person in line under the law is the named beneficiary. And a state divorce decree does not change the outcome.
At the same time, it’s true that in many states divorce will automatically cancel an ex-spouse’s beneficiary status whether the other spouse does the paperwork or not. But even if you’re in one of those states, you may have retirement plans that are governed by federal law. And according to the Tarasevich case, when state divorce law conflicts with federal law, the federal law prevails.
Contact a divorce lawyer near you to discuss this issue further.