What happens to my beneficiary designations after a divorce in Texas?
During a divorce one of the biggest issues in dividing the marital property is dividing the financial assets. Most married people will designate their spouse as the beneficiary on the account or policy. The Employee Retirement Income Security Act (ERISA) governs most employee benefits. It requires married employees to designate their spouse as the primary beneficiary unless the spouse provides a waiver. The Texas Family Code voids ex-spouses as beneficiaries on financial assets when the final order dissolving the marriage issues. Because those two laws conflict, you can inadvertently end up leaving assets to your ex-spouse.
ERISA and beneficiary designations
If you have retirement or life insurance benefits through your employer, ERISA likely controls what happens after divorce. ERISA says the beneficiary designation remains as it is. Even if a family court awards your ex-spouse part of your pension or 401k through a QDRO (qualified domestic relations order) if you leave him or her as your beneficiary on the plan, when you die he or she will receive any money payable from the plan on your death.
ERISA is federal law and controls over the Texas Family Code for employee benefit plans covered by ERISA so it will not matter that you divorced your ex-spouse and left her as the beneficiary. It is important that immediately after a Texas family court issues a final order dissolving your marriage that you submit a new beneficiary designation to each current and former ERISA benefit plan naming new beneficiaries. You cannot make the change before the marriage is dissolved unless your soon-to-be-ex-spouse is willing to sign the consent form in front of a notary.
Other assets in Texas
For other financial assets, such as bank accounts, IRAs, life insurance policies not obtained through an employee benefit plan, annuities and stock accounts, the Texas Family Code and Texas Probate Code will treat your ex-spouse as though the beneficiary designation is valid but she predeceased you. That means he or she will not receive any assets as a beneficiary under Texas law because Texas requires a beneficiary to survive you to collect under a valid beneficiary designation.
Instead, the assets will pass on to the beneficiary or beneficiaries next in line. These are often referred to as contingent beneficiaries or secondary beneficiaries. They will collect as beneficiaries when the primary beneficiary does not. If you have not designated contingent beneficiaries, the assets will pass to your estate. Although Texas law cuts off your ex-spouse for these plans, you will ensure an easier process with updated beneficiary designations.
ERISA governs employee benefits in all states; but financial assets outside of an employee benefit plan in another state may be subject to that state’s rules. The easiest way to avoid assets from passing to your ex-spouse upon death is to update your beneficiary designations. Following a divorce that each ex-spouse engage in financial, tax and estate planning.