The Wall Street Journal recently published an article involving a scenario that—while significant and possibly worst-case—may be more common than you may think. Specifically, the article describes a scenario under which Margaret Sjostedt, the former girlfriend of a deceased man, Jeffrey Rolison, stood to inherit the entirety of Mr. Rolison’s $1 million retirement account, even though the couple had ended their dating relationship nearly 40 years before Mr. Rolison’s death.
How Was This Possible?
Because, when the couple was dating in the 1980s, Mr. Rolison had listed Ms. Sjostedt as the sole beneficiary of his retirement account, and then never updated the form to designate a new beneficiary, including when their relationship ended. As a result, when Mr. Rolison, unfortunately, passed away in 2015, Ms. Sjostedt remained the listed sole beneficiary of Mr. Rolison’s retirement account. As one can imagine, upon Mr. Rolison’s death, this came as quite a surprise to his surviving next-of-kin—namely, his brothers—as Mr. Rolison and Ms. Sjostedt had ended their relationship nearly four (4) decades earlier.
Avoiding Unintended Consequences
Fortunately, the solution is easy…albeit yet another thing to add to your inevitably never-ending “to-do” list. Specifically, always double-check and update, as appropriate, your beneficiary designations on all bank accounts, retirement accounts and life insurance policies. However, this is an especially essential step to take following a major life event, such as after the termination of a marriage or the execution of a prenuptial or postnuptial agreement.
Each of these two (2) major life events—and the reason why it is especially critical to review and update your beneficiary designations following the same—is discussed in more detail below.
Termination of a Marriage
In Ohio, the termination of a marriage may automatically revoke or otherwise impact certain provisions of previously executed estate planning documents. This remains true regardless of whether a divorced spouse intended for these automatic impacts to occur or not.
Similarly, in other circumstances, the termination of a marriage may not automatically impact other previously made end-of-life designations or elections, including beneficiary designations. Instead, in order to modify or otherwise alter certain other previously made end-of-life designations or elections, an extra, affirmative step on the part of a divorced spouse may be necessary. This remains true regardless of whether a divorced spouse intended for these modifications or alterations to occur automatically or not.
As a result, following a divorce or dissolution proceeding, it is always best practice for parties to review and potentially reevaluate any previously executed estate planning documents as well as any other previously made end-of-life designations or elections, including beneficiary designations. In fact, doing so only requires a comparatively small effort, in exchange for avoiding substantially unintended consequences—and the potential for litigation—down the road.
Prenuptial or Postnuptial Agreement
A prenuptial agreement is a written contract that is negotiated and entered into by a couple before they are legally married. In contrast, a postnuptial agreement is a written contract that is negotiated and entered into by a couple after they are legally married. Generally speaking, a prenuptial and postnuptial agreement accomplish the same thing: specifically, to alter the rights that the parties would otherwise have by virtue of their marriage to each other, including financial and property rights upon a termination of the marriage, as well rights of descent and distribution in the case of the untimely death of one of the parties. A postnuptial agreement can also be used to modify and/or amend the terms of a previously executed prenuptial agreement.
While neither a prenuptial nor a postnuptial agreement is the appropriate legal vehicle to do any robust estate planning, such agreements can be a helpful way for intended spouses or current spouses, respectively, to kickstart their future estate planning. Further, depending on what is agreed upon in connection with a prenuptial and/or postnuptial agreement, it may be necessary for parties to update their beneficiary designations after executing any such agreements in order to achieve the outcome intended by the terms thereof.
Importance of Updating Beneficiary Designations
For example, one of the common decisions made in connection with a prenuptial and/or postnuptial agreement is the classification of any appreciation arising during the marriage on the parties’ retirement assets. Specifically, will appreciation arising during the marriage on such accounts be classified as Marital Property (and thus, divided equitably between the parties) or as Separate Property (and thus, returned to the originating party) in the case of a future termination of the marriage?
Depending on the decision that is made on this matter, it may be imperative, following the execution of the prenuptial and/or postnuptial agreement at issue, for the parties to execute certain spousal waivers and/or update the beneficiary designations for the relevant retirement assets, so as to comport with the decision made. Otherwise, the parties may be left with beneficiary designations that are incongruous with the terms of their prenuptial and/or postnuptial agreements—and thus, the potential for future litigation.
