Filed Under:Markets, Employee Benefits

Why a poorly drafted spousal waiver can ruin a financial plan

The 8th Circuit Court of Appeals ruled that a surviving spouse’s promise to waive her rights to her husband’s 401(k) funds by signing a postnuptial agreement was invalid because the agreement was written incorrectly. As a result, she didn’t waive her rights and inherited the money that was supposed to be paid to her husband’s parents. (MidAmerican Pension and Employee Benefits Plans Administrative Committee v. Michael G. Cox, Sr., et al., No. 12-3563, U.S. Court of Appeals, 8th Circuit, July 12, 2013)

Michael Cox worked for MidAmerican Energy Corporation and participated in the “MEC 401(k).” Between 1997 and 2004, Michael and Kathy Cox had been twice married and divorced. In September 2004, while he was single, Michael named his parents as the beneficiaries of his MEC 401(k). Afterwards, in 2010, Michael and Kathy remarried each other for the third time!

The District Court ruled that the postnuptial agreement was not effective to waive Kathy’s rights to the 401(k) funds. Despite the various provisions of the agreement, Kathy never acknowledged the effect of signing a waiver, which is required under ERISA. As a result, the Court said Kathy didn’t properly waive her rights to Michael’s 401(k) and awarded the funds to her as his surviving spouse. Michael’s parents disagreed with that, so they appealed the decision, but lost there as well.

In analyzing the case, the Court of Appeals said that ERISA governs the distribution of Michael’s 401(k) plan. Under ERISA, surviving spouses are automatically entitled to retirement benefits. However, a married plan participant can name someone other than his spouse as the beneficiary, but only if many strict rules under ERISA are met.

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Nichole Morford

Nichole Morford
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