If You Don't Want to Leave Retirement Accounts to Your Spouse (2024)

Many couples may not want to leave their retirement accounts to each other—perhaps you have reviewed your estate planning and decided that because each of you will be financially comfortable, you want the money in those accounts to go to a child from a previous marriage, or to a favorite charity. That's fine, but you may run into complications from state and federal laws intended to make sure surviving spouses aren't left out in the cold.

To make sure your wishes aren't thwarted, always get your spouse's consent in writing before naming someone else as beneficiary. No matter what kind of retirement account you have, written consent is always a good idea—and may be required by law.

401(k) Plans

A special rule applies to 401(k) plans and other "qualified plans" governed by federal law: Your spouse is entitled to inherit all the money in your 401(k) or other qualified plan unless your spouse signs a written waiver consenting to your choice of another beneficiary. It's not enough just to name someone else on the beneficiary form that your employer gives you. (I.R.C. § 417(a)(2) (2024).)

If your spouse agrees to sign the waiver, which should be provided by the firm that administers the 401(k) plan, a plan representative or a notary public must act as a witness. A prenuptial agreement can't take the place of a waiver; the law says the spouse (not soon-to-be-spouse) must sign. A spouse who does sign a waiver can withdraw that consent if the other spouse later names a different beneficiary, unless the signing spouse expressly gave up that right. (I.R.C. § 417(a)(2) (2024).)

Individual Retirement Accounts

If you don't live in a community property state, you are free to name whomever you wish as your IRA beneficiary, even if you're married.

If, however, you live in a community property state, chances are your spouse (or registered domestic partner or civil union partner) owns half of what you have socked away in a retirement account. If any of the money you contributed was earned while you were married, that money remains "community property," and your spouse owns half.

There are a few exceptions to this rule: Your spouse does not have any right to money you contributed before you were married or money that you alone inherited or were given. And the money you earned is yours to do with as you please if you and your spouse signed a valid agreement to keep all your property separate.

If the money in your retirement account is community property, and you want to name someone other than your spouse as the beneficiary, get your spouse's consent in writing. Some retirement plans, in fact, won't let you name someone else without this consent. If your spouse doesn't consent, the beneficiary you name will be entitled to only half of what's in the retirement account at your death.

State law may set out the rules about your spouse's consent. For example, in California, a spouse can revoke the consent, again in writing, any time before your death—in a will, for example. To be effective, the revocation must be delivered to you in a manner set out by law. (Cal. Prob. Code §§ 5030, 5031 (2024).)

What About Ex-Spouses? Don't Rely on Your Divorce Decree

If your former spouse's name is still on a beneficiary designation form for any kind of retirement benefit, change it. Do it even if you think your divorce settlement agreement makes it clear that your ex is no longer entitled to anything or that divorce voids your old beneficiary designation under state law.

If you don't, the former spouse could end up inheriting the benefit. That's what happened to a Texas couple. The wife, a retired teacher, had named her husband as the beneficiary of an annuity she received from the teachers' retirement system. Under state law, she couldn't name a different beneficiary without the written consent of her spouse or a court order. When she and her husband divorced, the divorce decree stated that the husband had no more rights to his wife's retirement benefits—but didn't specifically mention the annuity. And she never got her ex-husband's consent to name a new beneficiary. As a result, when the woman died, her ex-husband was legally entitled to the annuity benefits. (Holmes v. Kent, 221 S.W.3d 622 (Tex. 2007).)

There have been even more cases about 401(k)s and similar plans, including severance plans and employee savings accounts, which are governed by the federal Employee Retirement Income Security Act (ERISA). ERISA requires the plan administrator to simply pay the proceeds to the beneficiary named by the plan participant—not to figure out who should get them under a particular state's law. So if you name your spouse as beneficiary of a 401(k) plan, pension plan, or employer-provided life insurance policy, and later divorce, your ex-spouse will inherit—even if your state has a law that automatically revokes an ex-spouse's right to inherit. (See Egelhoff v. Egelhoff, 532 U.S. 141 (2001).)