Creative solutions for ERISA retirement account pay out


The situation: Our client retired, then went through a divorce. After remarrying, he submitted a beneficiary change form to his retirement plan administrator, naming his second wife as the new survivor beneficiary of his retirement account. The plan administrator never communicated that this change could not be made after his retirement date, which had long since passed. After he passed away, the benefit was paid to the first wife, but mailed to the second wife. It was then that they realized there was an error in the administration of the plan that needed to be addressed.

Our solution: Anne G. Brown commenced litigation to get the second wife added as a party to the original divorce litigation, and sought a “constructive trust.” This would allow the court to direct the payment to the second wife, after the plan administrator made the payments to the first wife.

The result: After a positive result at an initial hearing, Brown was able to negotiate a creative settlement agreement that fulfilled much of the gentleman’s intent for his second wife, while not burdening the first wife with the tax consequences of receiving the payouts, which were still required to be made payable to her.