Is This Going to Work?

While the plan administrator believed John’s parents were authorized to receive the benefits, Jane thought otherwise. The plan administrator filed an “interpleader”, for the purpose of having the courts decide who was legally entitled to the property.

Ruling

Despite the specificity of the prenuptial and postnuptial agreements, the District Court ruled that the postnuptial agreement was ineffective. Jane never acknowledged the effect of signing a waiver, which is required under ERISA, nor did it spell out in clear terms Jane, as a surviving spouse, was entitled to John’s funds in the retirement plan, another requirement under ERISA. ²

Lawfully, Jane had rights to her not-quite-ex-husband’s property, and ironically, as beneficiaries, John’s parents did not receive any benefits of the 401(k).

Lesson Learned

Furthermore, John and Jane should have implemented documents within the 401(k) that waived spousal rights. Postnuptial agreements have their limitations when it comes to 401(k) plans and ERISA has specific requirements. Moral of the story: third time isn’t always a charm.

Conclusion

Finding out if your pre- and post- nuptial agreements meet the standards under ERISA by working with our advisors and network of outside professionals is crucial to the future of your retirement. We, at Riverview, can assist you as you consider the concept of 401(k) planning.

SOURCES:

1. http://www.dol.gov/ebsa/faqs/faq_qdro.html 
2. http://www.investmentnews.com/article/20131110/REG/311109991

Contributors: Alan Arcadipane is a Business Analyst of the Business Advisory Group at Riverview Capital Advisers. Melysa Latham is a member of the Business Advisory Group at Riverview Capital Advisers.