Beneficiary forms - the $402K mistake

“Nothing in fine print is ever good news.” ~Andy Rooney, American radio and TV journalist and commentator (1919-2011)

 

In 2009, the U.S. Supreme Court issued a unanimous decision that allowed a deceased man’s ex-wife to receive $402,000 from her ex-husband’s workplace savings plan – even though their divorce decree stated that she gave up all right to such funds.

 

Q. What happened in this case?

For many years, a man named William saved money in his employer’s “Savings and Investment Plan” (SIP).  William made his wife Liv his sole beneficiary for his SIP account.

William and Liv later divorced.  In the divorce decree, Liv gave up any claim to William’s pension plan and his SIP account. 

Q. How did this case get to the U.S. Supreme Court?

William changed his pension plan beneficiary, but never changed his SIP beneficiary.  When William died in 2001, he left his entire estate to his daughter Kari, who asked the employer’s SIP administrator to pay the $402,000 in the SIP account to her father’s estate. 

The SIP administrator instead paid the $402,000 to the ex-wife Liv, who was the SIP beneficiary.

William’s daughter Kari sued the SIP administrator in federal court.  The judge ruled in Kari’s favor and said the $402,000 belonged to William’s estate. 

The case was appealed to the Fifth Circuit Court of Appeals, which said the money belonged to the ex-wife. 

The case was then appealed to the U.S. Supreme Court.

Q. What did the Supreme Court say?

The Supreme Court ruled that companies are bound under federal law by what a worker puts down on beneficiary forms designating who is to receive funds after the worker’s death.

Therefore, the employer’s SIP administrator had a legal duty to pay the $402,000 in the SIP account to William’s ex-wife, Liv, who was the named beneficiary. 

Q. What is the bottom line lesson?

Make sure your life insurance and employment-related beneficiary forms are up-to-date as intended, especially when you have a major life change – such as marriage, divorce, the birth of a child, or retirement.

Jim Hawkins is a general practice and public interest law attorney based in Gallatin. This column represents legal information, and is not intended to take the place of legal advice.  All cases are different and need individual attention.  Consult with a private attorney of your choice to review the facts and law specific to your case.  To suggest future column topics, call (615) 452-9200.

 

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