Stepmom Snatches 401(k) from Her Stepchildren
In a recent case, Cajun Industries, LLC vs. Robert Kidder, et al., the decedent designated his three children as beneficiaries of his 401(k) plan after his first wife died. He remarried a few months before he died and did not realize he needed to make any changes because he still wanted his 401(k) plan to go to his children. Unfortunately, when he died, his new wife successfully claimed the entire 401(k) account due to a federal law known as ERISA. This law required Mr. Kidder to fill out a new beneficiary form after he remarried and to obtain the consent of his new wife. Because his wife had not consented to his designation in favor of his children, ERISA required the account to be distributed to his wife.
There were two other potential solutions that would have allowed the funds in the 401(k) account to go to Mr. Kidder’s children. Prior to getting married, Mr. Kidder could have asked his wife to sign a prenuptial agreement wherein she agreed to sign a waiver of his 401(k) plan. Alternatively, before he married, Mr. Kidder could have rolled his 401(k) account to an IRA and then designated his children as beneficiaries of his IRA. The rules requiring a spousal waiver to a beneficiary designation do not apply to IRAs.