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Federal law and beneficiary designations in property division

Now that tax season is here, many Houston couples have finances on their minds. Unfortunately, divorce may also be a consideration this time of year, as the holidays have passed and the new year gets many spouses thinking about moving on in life. Of course, both marriage and divorce involve a heavy dose of financial considerations, especially when the marriage ends and property division begins.

Many may think retirement accounts are fairly straightforward to handle during property division. After all, many of their elements are clearly laid-out when a person first opens one up with an employer or individually. When someone starts a retirement account, usually they name a beneficiary to receive the funds in the event of the worker's death. However, 1974's Employee Retirement Income Security Act made it so that spouses are generally the beneficiary of deceased worker's accounts.

While this may not seem to be a big issue for happily married couples, it can quickly morph into a source of dispute for divorcing spouses. This is because if a worker wants to list his or her children as beneficiaries, the spouse must specifically waive his or her rights. This is also the case if a worker remarries after divorce and wants to list children from the previous marriage as beneficiaries. Essentially, due to federal law, retirement accounts - such as 401(k)s - must be handled with care because spouses are often the "automatic" beneficiary.

For spouses who have been married less than a year, ERISA lets certain plans bypass the requirement for spousal consent. However, this option needs to be explicitly mentioned in the plan. Making matters more complicated, many retirement plans do not actually have to contain this information.

Property division in Texas is much more than simply drawing a line between marital property and community property. Even a seemingly simple 401(k) can trigger confusion if all legal matters are not thoroughly understood.

Source: Investor's Business Daily, "Handling your ex: Tips for switching 401(k) beneficiaries," Donald Jay Korn, Jan. 31, 2014

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Attorney Christine K. Lincoln

Christine K. Lincoln offers sound counsel and legal services to protect clients and their families facing divorce and other family disputes.

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