Post-Divorce Financial Pitfalls: Named Beneficiaries
Our clients want to move on with their lives as quickly as possible after the completion of their divorce. Moving on includes taking control of their own finances. While married, most people want their spouse to inherit the funds in the retirement accounts should they pass on. However, the last thing that they want is for their former spouse to inherit the funds.
If you are married and live in a community property state such as Texas, most financial institutions will not allow a person to remove their spouse as a beneficiary unless the spouse signs a consent form. Once the divorce is final, a client can then easily remove the former spouse by providing a copy of the divorce decree to the financial institution. Clients basically have three choices on their beneficiaries:
1) Before the Divorce is Final – Must obtain a Spousal Consent form signed by the spouse
2) After the Divorce is Final – Provide the financial institution a divorce decree
3) Ignore the Problem – The former spouse will inherit this account in the event of client’s death
One thing that is very important to know is that financial accounts that have a named beneficiary take precedence over the client’s will. Some clients believe that by changing their will post – divorce, they can direct who receives all of their funds upon death. Unfortunately, that may not be the case. Upon the client’s death, the named beneficiary on the account will inherit those funds regardless of what their will states.
Many clients are unaware of the need to change beneficiaries. They need their divorce team to guide them down the right path.
By doing so, we are helping the client during their lifetime and beyond.