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IRA Beneficiary Designation Affected by Divorce

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In our last newsletter, we discussed the importance of following up your estate planning. Beneficiary designations are an important part of that process, we emphasized. Your IRA beneficiary designation can be particularly challenging to get right. You may have already noticed, too, that things change.

A recent federal appellate decision (involving an Arizona state law) illustrates how things can go wrong. It involves an Individual Retirement Account — an IRA — set up by a man we’re going to call Gary Knight back in 1992.

When the account was set up Gary named his wife Cynthia as beneficiary. In 2008, when Gary and Cynthia divorced, they both lived in Arizona. Gary never changed his beneficiary designation. He also never made it clear that his failure to make a change might be intentional.

Gary died in 2012, four years after the divorce. Cynthia claimed that, since she was still listed as beneficiary, she ought to be entitled to the IRA proceeds. Gary’s son, as personal representative of his father’s estate, disagreed.

The revocation-on-divorce statute

What does happen to your estate plan when you divorce? The answer will vary depending on where you live (and die), and on what you mean by “estate plan”.

Arizona had long had a statute invalidating a will provision leaving property to a spouse upon divorce. In 1995 — after Gary set up his IRA — the Arizona legislature substantially expanded that statute.

Arizona Revised Statutes section 14-2804, as it now stands, includes a broad “revocation-on-divorce” provision. It covers all sorts of assets, and includes, among many other things, your IRA beneficiary designation. Under the current Arizona law, a divorced spouse is treated as having predeceased the IRA account owner unless the failure to update beneficiaries was intentional.

Not every state has the same broad provision. California, for instance, merely creates a presumption of revocation, rather than a complete revocation of the IRA beneficiary designation on divorce. And Gary’s IRA was managed by Charles Schwab, whose participation agreement indicated that federal law, and then California law, would govern its accounts.

You might already know that retirement accounts are often treated differently from other kinds of assets. That’s partly because many retirement accounts are controlled by the federal Employee Retirement Income Security Act of 1974 (ERISA), which expressly preempts state law on things like beneficiary designations.

Did Gary’s failure to change his beneficiary mean that the ERISA rules would apply? Was it a problem that the Arizona law was expanded to include IRAs after Gary’s account was established? Did it matter that the IRA agreement itself seemed to indicate that California law should apply?

The District Court ruling

Cynthia filed her lawsuit in federal court in California. She argued that California law should apply, and that in any case Arizona could not change the rules after the account was already established. She agreed that Gary’s IRA wasn’t actually controlled by ERISA. Still, she argued, the hard-and-fast rule about beneficiaries should be treated in the same fashion as ERISA. That would mean that Gary had to affirmatively change his beneficiary after the divorce.

The California court sent the entire case to its Arizona federal court equivalent. In Arizona, the federal judge ruled in favor of Gary’s estate. It found that Arizona law applied, and that Cynthia had no standing to object to the state law change. That meant Arizona’s revocation-on-divorce statute invalidated the beneficiary designation in her favor, and Gary’s IRA would go to his estate.

The Court of Appeals upholds the IRA beneficiary revocation

Last month the federal Ninth Circuit Court of Appeals upheld the District Court decision. According to the appellate judges, Arizona’s revocation-on-divorce statute applies, and it works to invalidate Cynthia’s designation as beneficiary on Gary’s IRA.

The Court of Appeals did disagree with the District Court in one particular, though it did not change the outcome. According to the appellate court, Cynthia did have standing to raise her argument about Arizona’s statute invalidating an existing contractual arrangement. Nonetheless, her argument was not persuasive. Because her interest was as a beneficiary, and not an account owner, she had no vested interest at the time of the statutory change. Lazar v. Kroncke July 14, 2017.

What it means for you

We’ll say it again: beneficiary designations are an important part of your estate planning. Perhaps Gary consciously intended to leave a substantial asset to his ex-wife four years after their divorce. If so, he needed to address the issue intentionally, rather than rely on default rules. If he intended to remove her as beneficiary, he should have filled out the proper form, signed it, and sent it to Charles Schwab.

We get it. Life is complicated, and sometimes things don’t get done. We’re overdue for our semi-annual teeth cleaning, too — and don’t even get us started on how hard it is to get going on yard work. But beneficiary designations are easier than both of those things; Gary could have downloaded the Charles Schwab beneficiary designation form (we just found it online with a simple search in less than ten seconds) and filled it out in about ten minutes.

When you complete your estate plan with us, we will talk to you about beneficiary designations. We can complete the forms, and review your current designations. We can’t get them ourselves, though — you have to tell us about the assets, and request the current beneficiary information. It’s not that hard to update your IRA beneficiary designations, though — or any of the other beneficiary information you have listed on various accounts and assets. Maybe you (and we) could start with a list.

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Robert B. Fleming


Robert Fleming is a Fellow of both the American College of Trust and Estate Counsel and the National Academy of Elder Law Attorneys. He has been certified as a Specialist in Estate and Trust Law by the State Bar of Arizona‘s Board of Legal Specialization, and he is also a Certified Elder Law Attorney by the National Elder Law Foundation. Robert has a long history of involvement in local, state and national organizations. He is most proud of his instrumental involvement in the Special Needs Alliance, the premier national organization for lawyers dealing with special needs trusts and planning.

Robert has two adult children, two young grandchildren and a wife of over fifty years. He is devoted to all of them. He is also very fond of Rosalind Franklin (his office companion corgi), and his homebound cat Muninn. He just likes people, their pets and their stories.

Elizabeth N.R. Friman


Elizabeth Noble Rollings Friman is a principal and licensed fiduciary at Fleming & Curti, PLC. Elizabeth enjoys estate planning and helping families navigate trust and probate administrations. She is passionate about the fiduciary work that she performs as a trustee, personal representative, guardian, and conservator. Elizabeth works with CPAs, financial professionals, case managers, and medical providers to tailor solutions to complex family challenges. Elizabeth is often called upon to serve as a neutral party so that families can avoid protracted legal conflict. Elizabeth relies on the expertise of her team at Fleming & Curti, and as the Firm approaches its third decade, she is proud of the culture of care and consideration that the Firm embodies. Finding workable solutions to sensitive and complex family challenges is something that Elizabeth and the Fleming & Curti team do well.

Amy F. Matheson


Amy Farrell Matheson has worked as an attorney at Fleming & Curti since 2006. A member of the Southern Arizona Estate Planning Council, she is primarily responsible for estate planning and probate matters.

Amy graduated from Wellesley College with a double major in political science and English. She is an honors graduate of Suffolk University Law School and has been admitted to practice in Arizona, Massachusetts, New York, and the District of Columbia.

Prior to joining Fleming & Curti, Amy worked for American Public Television in Boston, and with the international trade group at White & Case, LLP, in Washington, D.C.

Amy’s husband, Tom, is an astronomer at NOIRLab and the Head of Time Domain Services, whose main project is ANTARES. Sadly, this does not involve actual time travel. Amy’s twin daughters are high school students; Finn, her Irish Red and White Setter, remains a puppy at heart.

Famous people's wills

Matthew M. Mansour


Matthew is a law clerk who recently earned his law degree from the University of Arizona James E. Rogers College of Law. His undergraduate degree is in psychology from the University of California, Santa Barbara. Matthew has had a passion for advocacy in the Tucson community since his time as a law student representative in the Workers’ Rights Clinic. He also has worked in both the Pima County Attorney’s Office and the Pima County Public Defender’s Office. He enjoys playing basketball, caring for his cat, and listening to audiobooks narrated by the authors.