Close

Prenuptial Agreements May Not Waive Beneficiary Rights

The mere inclusion of a clause in a prenuptial agreement to waive beneficiary rights to a 401(k) plan’s proceeds is not enough to enact an actual spousal waiver. Rather, a spouse’s rights are only waived if the consent requirements in the Employee Retirement Income Security Act of 1974 (ERISA) are complied with. This was the recent finding of a federal appellate court.

At issue was whether a deceased man’s then-wife or his parents were entitled to his 401(k) benefits. Michael G. Cox II and Kathy L. Cox executed a prenuptial agreement on February 19, 2010, before getting married on March 6, 2010. Michael filed for a divorce on May 4, 2011, but died on May 21, 2011, before the divorce was finalized. His 401(k) plan, the MidAmerican Energy Corporation (MEC) 401(k) plan, asked Kathy on August 2, 2011, to sign a waiver disavowing any rights to receive Michael’s retirement savings. Kathy refused and the case was taken to court.

In upholding a lower court’s ruling in favor of Kathy instead of Michael’s parents, the 8th U.S. Circuit Court of Appeals opined, “For Michael’s designation to control, Kathy must have waived her rights in accordance with Section 1055(c)(2)(A)” of ERISA. The court concluded Kathy did not explicitly do so.

In explaining its rationale, the appellate court said “The antenuptial agreement is equivocal whether Kathy waived her rights at all.” Even though the prenuptial agreement included a pledge by both spouses to waive their rights to the other’s retirement plans, no additional action was specifically taken to execute Kathy’s waiver. As such, the court concluded, “In the absence of the fulfillment of this promise, Kathy could not have meaningfully acknowledged the effect of any waiver of her spousal rights in the antenuptial agreement.”

The key issue was that though Kathy agreed to waive her rights in principle, she never signed any notarized documents directly instructing the MEC 401(k) plan that she was waiving her rights. The case shows the importance of ensuring all beneficiary information is properly checked and updated on a regular basis, especially if a significant change in family status occurs.

Source: MidAmerican Pension and Employee Benefits Plans Administrative Committee v. Michael G. Cox, Sr., Joleen Cox and Kathy L. Cox, U.S. Court of Appeals for the 8th Circuit, July 12, 2013.


Discussion

John Liggitt from CA posted 4 months ago:

As a former trust officer at a large bank, this article enforces the fact that intentions must be followed by actions. The intent in this case was obvious, but due to the fact that no affirmative action to waive her rights was taken negates the purpose of the prenuptial agreement. I submit that it is the duty of the respective attorneys who drafted the prenuptial agreement to see to it that the proper action, in this case, the appropriate waiver, be completed.


You need to log in as a registered AAII user before commenting.
Create an account

Log In