It Isn’t Over
The day finally arrives. Your attorney calls you or perhaps notifies you in writing that the Divorce Decree has been handed down. At long last (maybe six months, maybe a year, maybe even three or four years) it is finally over.
Not true! In the famous words of the "political philosopher" Yogi Berra, “it ain’t over till it’s over”. The Divorce Decree (assuming no appeal) in many cases is not the end, and many important matters may still require attention before that Postnuptial Agreement or that decision obtained after a Hearing with blood, sweat and tears – the result you worked so hard to achieve – materializes.
Like many other things, the devil is in the details and taking care of the details is still required. For example, the failure to remove the ex-spouse as a primary beneficiary of life insurance issued through an employer may negate the provisions of a Postnuptial Agreement which provides that the ex-spouse should have no interest in life insurance proceeds or other property of the spouse at death.
A decision handed down by the Pennsylvania Superior Court this past year reiterated this point. In that case, the Court determined that a provision designating an ex-spouse as beneficiary in an employer provided insurance policy under ERISA, will be given effect and the ex-spouse will remain the beneficiary if not changed by the employee spouse after the divorce decree in spite of Pennsylvania Law, which might appear to be to the contrary. The Pennsylvania Law was preempted by ERISA, which produced a result not intended by the deceased employee’s spouse.
This result may be different if the policy is not provided by the employer and not under ERISA since a Pennsylvania Law found here provides that, if a person is divorced at the time of his or her death after designating his or her spouse (ex-spouse) as beneficiary of life insurance policy, annuity contract, pension or profit sharing plan or other contractual arrangements for payments to his or her spouse, any designation in favor of his or her former spouse which was revocable by him or her after the divorce shall become ineffective for all purposes and shall be construed as if the former spouse has predeceased him or her…. While preempted by ERISA with regard to pensions, employer-provided life insurance or similar employer-provided ERISA benefits, the Pennsylvania statute may be effective as to non-ERISA matters.
The decision mentioned above would appear to also preempt provisions of Postnuptial Agreements which attempt to waive an interest in an employee-spouse retirement plan which is covered by ERISA. The failure to actually change beneficiaries after divorce would result in a substantial change from that intended in Postnuptial Agreements.
Divorced persons should not only carefully review all beneficiary designations in life insurance policies, but they should also review their Wills, Powers of Attorney, Healthcare Directives and Living Wills and make appropriate changes. Also, it is important to make revisions to retirement plans, IRA’s and joint accounts to avoid unintended consequences as well as expensive litigation.
It is equally important, if not done during the divorce action, to determine that the former spouse has no ability to charge obligations on any credit cards, lines of credit or other instruments which may result in your financial liability. That can lead to an entirely different but no less difficult problem.
So, when you think it’s finally over and you’ve got that hard earned divorce decree; think again, and be sure to look carefully at the details to be sure that it is, in fact, actually over.