In previous entries, I have written about what happens when you can’t locate a spouse for waiver purposes, about how to deal with missing beneficiaries or even how to review QDROs. Well, every now and then a new case comes around that throws in a new twist, so let’s consider when a spouse really ceases being a spouse.
In Gallagher v. Gallagher, the Massachusetts District Court was asked to consider a case between the son a deceased participant and his not-quite-ex wife. In 1989, Mr. Gallagher separated from his wife and entered into a separation agreement and continued to pay spousal support to his estranged wife. But the participant never actually finalized the divorce. He had not spoken to his estranged wife for several years and in 2005, the participant changed the beneficiary designation on his 401(k) plan to his son. He then passed away in 2011 and his estranged wife and son instituted litigation over who was the appropriate beneficiary.
The Court ruled that even though the participant’s intention to change his beneficiary was clear, since he was not actually divorced, he could not alienate his "spouse" and she was entitled to the account balance. The spouse was still a "spouse" until legally she was no longer a spouse.
So the lesson for plan administrators is don’t assume an estranged spouse is no longer a proper beneficiary or that they have no claim under the plan. Unless you see a divorce decree confirming the termination of the "spouse" status, don’t do anything to adversely impact that spouse’s claim to benefits. Just because a participant says they are divorced, get proof. In this case, if the plan had disbursed the money to the son, it might have had to pay it again to the spouse because it did not check. So don’t assume a spouse is not a spouse until you get proof.