People experience many changes in their lives as they grow and mature. Often, there are marriages and children and plans for the future, but there could also be divorce and remarriage. A change in marital status can have a huge impact on a person's life. While many remember to update essential documents such as wills after a divorce, they forget about retirement accounts and what will happen in the event of their death. In Texas and many other states, retirement accounts are not considered part of an estate and may not be included in the provisions of a will.
Numerous cases have been reported of retirement account owners not updating beneficiary information. This could lead to a long and tedious court battle to determine who is entitled to the money, and the outcome may not be favorable. Updating all-important documents after a divorce, with each life milestone and reviewing them periodically for accuracy, is critical. The last thing a family needs after a loved one passes is to have an outsider determine that the beneficiary of his or her estate is the ex-spouse.
For plans such as 401(k)s, profit sharing plans and pension accounts, the spouse of the deceased automatically becomes the beneficiary. This may not be the case with IRAs; some states require spousal consent if the original owner designates someone other than his or her current spouse to the account. Account owners may want to check plan documents and update necessary beneficiary information to reflect their preferences.
When planning for the future, periodic review of important retirement account documents will ease the burden on families. In Texas, it may be in one's best interest to meet with an attorney after a divorce to discuss changes in beneficiaries. This will ensure that all retirement accounts, wills and other essential document beneficiaries are up to date.
Source: investopedia.com, "The Importance of Updating Retirement Account Beneficiaries", Denise Appleby, Dec. 13, 2017