Your divorce decree is signed. You've updated your will. You changed the locks, opened a separate bank account, and started the painful process of moving on.
But your retirement accounts still list your ex-spouse as the primary beneficiary.
That's a problem — and it's more common than you'd think. Beneficiary designations are among the most overlooked financial steps after divorce, and they can have consequences that a will, a trust, or even a court order cannot override.
Why Beneficiary Designations Override Your Will
Most people believe that a will controls who inherits their assets. For most property, that's true. But several major financial accounts are governed by contract — not probate law — which means beneficiary designations take precedence over anything written in your will.
This applies to:
- Retirement accounts: 401(k), 403(b), IRA, pension, SEP IRA, SIMPLE IRA
- Life insurance policies: term, whole life, universal life
- Annuities
- Payable-on-death (POD) bank accounts
- Transfer-on-death (TOD) brokerage accounts
If your ex-spouse is named as the beneficiary on any of these accounts, they may inherit the assets regardless of what your will says, regardless of what your divorce decree says, and regardless of your wishes.
This is not hypothetical. The Supreme Court addressed exactly this scenario in Egelhoff v. Egelhoff (2001), ruling that federal law (ERISA) preempts state laws that would automatically revoke a former spouse's beneficiary status on employer retirement plans.
The bottom line: your divorce does not automatically remove your ex-spouse from your retirement accounts. You have to do it yourself.
The Accounts You Need to Update Immediately
Employer Retirement Plans (401k, 403b, Pension)
Under ERISA, the federal law governing employer-sponsored retirement plans, your named beneficiary receives the assets — full stop. Many states have "revocation-on-divorce" statutes that automatically nullify beneficiary designations when a marriage ends, but the Supreme Court has ruled that ERISA overrides these statutes for employer plans.
Action step: Contact your HR department or plan administrator and request beneficiary change forms. This is paperwork you must complete directly — your attorney or financial advisor cannot do it for you.
IRAs (Traditional, Roth, SEP, SIMPLE)
Individual Retirement Accounts are not governed by ERISA, so some state revocation-on-divorce statutes may apply. But the rules vary significantly by state, and relying on an automatic revocation is a legal gamble you should not take.
Action step: Log in to each IRA account — whether held at a brokerage, bank, or credit union — and update the beneficiary designation. If you have multiple IRAs at multiple institutions, every one of them needs to be updated.
Life Insurance
Your divorce decree may actually require you to maintain life insurance — particularly if you have children or pay spousal support. Read your final decree carefully before making any changes to life insurance.
If there is no court requirement, you can name a new beneficiary. Common choices include adult children, a trust for minor children, or a new spouse. If you want to benefit minor children, naming a trust rather than the children directly is usually the cleaner approach — minors cannot receive inherited assets without a court-appointed guardian of the property.
Annuities
Annuities are insurance contracts, and beneficiary designations govern the death benefit. Contact the insurance company directly to update the beneficiary. If the annuity was divided in the divorce, make sure the division was properly documented in a court order and executed by the insurance company before making any beneficiary changes.
Payable-on-Death and Transfer-on-Death Accounts
POD bank accounts and TOD brokerage accounts pass outside of probate — directly to the named beneficiary. These are often overlooked because they don't go through the same formal processes as retirement accounts.
Action step: Call your bank and brokerage. Ask for a list of all accounts with POD or TOD designations and update each one.
Benefits You May Retain After Divorce
Updating beneficiaries isn't only about removing your ex. There are also benefits you may be entitled to that you should preserve.
Life insurance on your ex-spouse: If your divorce agreement requires your ex to maintain life insurance for your benefit (common in alimony arrangements), verify that the policy exists, that you are named as beneficiary, and that you can receive notice if the policy lapses.
Survivor benefits from pension plans: If your ex-spouse has a pension, your right to a portion of the survivor benefit should be spelled out in a Qualified Domestic Relations Order (QDRO). Once a QDRO is approved by the plan administrator, it establishes your rights as an alternate payee — including survivor benefits. Do not let this step fall through the cracks.
Health insurance: COBRA coverage from your former spouse's employer plan typically lasts 36 months from the qualifying event. Enrollment windows are strict. Missing a deadline means losing coverage.
The Right Order of Operations
1. Get a complete picture first. Before changing anything, compile a list of every account with a beneficiary or TOD/POD designation — including old 401(k)s, small annuities, and life insurance policies from decades ago.
2. Read your divorce decree before changing anything. Some changes — particularly to life insurance — may be required or restricted by your settlement agreement or court order.
3. Update retirement accounts first. ERISA-governed plans present the highest legal risk if left unchanged.
4. Update everything else systematically. Work through your list account by account until every designation reflects your current intentions.
5. Review your estate plan. Your will and any trusts may need to be updated. Your power of attorney and healthcare directive almost certainly do.
6. Set a reminder to review in one year. Remarriage, new grandchildren, the death of a named beneficiary — any of these should trigger another review.
The Most Common Mistakes
- Updating only the accounts you remember. A 401(k) from 2011, an old whole life policy, a rollover IRA at a credit union — these still have beneficiary designations.
- Naming a minor child directly. A trust is almost always the better vehicle when the intended beneficiary is under 18.
- Forgetting contingent beneficiaries. If your contingent beneficiary was also your ex-spouse or their family members, update those as well.
- Assuming your attorney took care of it. Attorneys handle the legal settlement. Changing beneficiary designations is your responsibility.
When to Work With a Financial Advisor
The mechanics of updating a beneficiary designation are relatively straightforward. What's harder is the planning that surrounds these decisions — who to name, whether a trust is appropriate, and how inherited IRA tax rules affect your choice of beneficiary.
A Certified Divorce Financial Analyst (CDFA®) or CFP® who specializes in post-divorce financial planning can help you think through these questions systematically and make sure your beneficiary updates are consistent with your overall estate and retirement plan.
If you'd like help reviewing your complete financial picture after divorce, Inventa Wealth Advisors works with clients navigating exactly these transitions. Our office is at 7440 South Creek Road, Suite 250, Sandy, UT 84093, and we offer Telewealth virtual appointments for clients across the country. Visit inventawealth.com to schedule.
The information in this article is for educational purposes only and does not constitute legal, tax, or financial advice. Consult a qualified attorney, financial advisor, and tax professional regarding your specific circumstances.