It is not a happy topic, but divorce happens. And, January apparently has the greatest number of divorce filings. When going through a divorce a person’s entire life is rearranged, and there is often a complete reorganization of personal and financial affairs.

One important, but sometimes overlooked, part of that reorganization is updating the estate plan in light of changed circumstances. A new Will, Power of Attorney, and Living Will are essential, but just as essential are updates to any beneficiary designations on life insurance and retirement accounts.

While not a reason to delay updating an estate plan, the good news is that both Pennsylvania and New Jersey have laws providing that an ex-spouse’s interest in a decedent’s estate is nullified. The bad news is that these laws do not apply to plans and benefits governed by the Employee Retirement Income Security Act, commonly known as “ERISA”. This means if your 401(k) or 403(b), or your employer provided life insurance names an ex-spouse as beneficiary, the plan administrator is required to pay the money or benefits to the ex-spouse. This has, and will continue to, cause disputes among family members. Particularly, where there are children from different relationships involved.

The United States Supreme Court ruled on this issue in Egelhoff v. Egelhoff, 532 U.S. 141 (2001), and held that ERISA preempted a Washington State statute, which automatically revoked a spouse’s (or domestic partner’s) interest the in life insurance or retirement benefits of the other on dissolution or invalidation of the relationship. The Egelhoff case has been followed numerous times, including other Supreme Court cases, as well as cases in the United States Court of Appeals for the Third Circuit (which includes both PA and NJ), and the Pennsylvania Supreme Court.

In 2009, the Supreme Court decided Kennedy v. Plan Administrator, 555 U.S. 285 (2009), where both a decedent’s ex-wife and the executor of the decedent’s estate (his daughter from a prior marriage) claimed the decedent’s benefits under a company administrated savings and investment plan (SIP). While the ex-wife had waived her interest in the SIP in the divorce, the decedent never changed the beneficiary designation form with his employer; the plan administrator followed the designation on file and paid the benefits to the ex-wife. The Supreme Court held that the ex-wife’s waiver to the benefits was not invalid, but that because the wavier was not part of a Qualified Domestic Relations Order (QDRO), the plan administrator was obligated to follow the plan documents and pay the benefits to the ex-wife. In a footnote, the Court stated that it was not opining on whether, and left open the possibility that, the Estate could bring an action directly against the ex-wife for the benefits received.

And, just this past November the Pennsylvania Supreme Court, in In re Estate of Sauers, held that a Pennsylvania statute, 20 Pa. C.S.A. § 6111.2, which in effect, revokes an ex-spouse’s interest in the life insurance or retirement accounts of a decedent (similar to the Washington statute addressed in Egelhoff), is preempted by ERISA with respect to the plans ERISA governs. Going further, the Pennsylvania Supreme Court found that the right of private action against an ex-spouse for benefits paid by the plan administrator provided by the Pennsylvania statute was also preempted by ERISA and was invalid.

The bottom line, if you or a client has been through, or is currently going through, a divorce estate planning should be at or near the top of the list of priorities. And, when updating an estate plan, beneficiary designations are as important as your Will and other documents.