Planning For Utah Retirement Funds In A Post-Nuptial Agreement

A recent court case highlights how risky it is when a married couple attempts to use a post-nuptial agreement when trying to waive spousal benefits to an employer retirement plan. In the case of Mid-American Pension v. Michael Cox, the court ruled that a surviving wife’s promise to waive her rights to her husband’s 401(k) funds by signing a post-nuptial agreement was invalid because the agreement wasn’t drafted correctly.

There is a lot at stake when two people decide to get married. Consequently, it is becoming more and more common for a marriage to start with an agreement: a pre-nuptial agreement or even a post-nuptial agreement. While there is a lot at stake, there also are a lot of strict rules that come to bare on the agreements you make. Understand them and plan accordingly, or risk an unexpected backfire down the road.

Specifically, and in light of the recent case of Mid-American Pension v. Michael Cox, it is important to appreciate that IRAs and other specific assets with named beneficiaries and separate legal designations are just tricky when it comes to any legal planning. More to the point, pre-nuptial or post-nuptial planning for these assets can be risky, as highlighted in a recent article in The Slott Report titled “Using Post-Nuptial Agreements for Employer Plan Benefits is Risky.”

In the case of Mid-American Pension v. Michael Cox, a husband and wife came to an agreement and signed a post-nuptial agreement promising to disclaim any right to the other’s assets in the event of divorce. Mr. Cox filed for divorce (this was the third time, and they had been married to and divorced from each other twice before), but never succeeded because he passed away before the proceedings could be concluded. All the same, Mrs. Cox was supposed to disclaim everything, including his IRA, but that did not happen. The parents of Mr. Cox were the intended and designated beneficiaries of their son’s IRA.

When the not-yet-ex-wife and her in-laws went to court, Mrs. Cox prevailed because the proper protocol for disclaiming an interest in retirement funds was not followed. You see, IRAs, pensions, and the like have very specific and legally enforced requirements, and the post-nuptial agreement did not cut the mustard. In fact, a simple form from the plan provider would be necessary in this instance.

IRAs and pensions are one thing, but they are not the only assets to consider when entering into a pre-nuptial or post-nuptial agreement. Follow the “carpenter’s rule” and measure twice and cut once. There are few do-overs if the time ever comes when the agreement must be enforced.

For more information about planning for retirement in the Salt Lake City, UT area, please visit my estate planning website.

Reference: The Slott Report (August 13, 2013) “Using Post-Nuptial Agreements for Employer Plan Benefits is Risky”