Change Your Beneficiary Designations, or Forever Hold Your Peace
Klenda Austerman attorney Michael L. Baumberger recently won an appeal to the Kansas Court of Appeals on a case involving a dispute over 401k proceeds. Bryon Funk listed his wife as the beneficiary of his 401k proceeds. The Funks divorced seven years later. Mr. Funk passed away 14 years later having never changed his beneficiary designation. Mr. Funk’s sister claimed the 401k proceeds should not go to the ex-wife because the 401k was awarded to Mr. Funk in the divorce. Mr. Funk’s sister claimed that the pre-trial order and divorce decree was a contract and Mr. Funk’s ex-wife breached the contract by accepting the 401k proceeds after his death. She also claimed that Mr. Funk’s ex would be unjustly enriched if she were permitted to retain the proceeds.
The Kansas Court of Appeals ruled in favor of Mr. Funk’s ex-wife. The Court ruled that the pre-trial order was not a contract. Even if it was, Mr. Funk clearly received the 401k in the divorce and was free to do whatever he wanted with the proceeds including leaving them to his ex-wife. The Court further determined that Mr. Funk’s ex was not unjustly enriched by retaining the 401k proceeds. Because the 401k is a trust, Mr. Funk was required to designate any beneficiary changes in the divorce decree per Kansas statute 60-1610(b). Since Mr. Funk designated no changes in the divorce decree, he was obligated to make any changes with the plan administrator for the 401k. Where Mr. Funk failed to follow either of these options, the Court refused to modify the beneficiary designation.
The moral of the story is that divorcing parties should ensure that any intended beneficiary changes are noted in their divorce decrees, or promptly change their beneficiary designations through the proper channels once the divorce is finalized, otherwise they risk unintended consequences which the Courts will not correct.