The 8th Circuit Court of Appeals ruled that a surviving spouse’s promise to waive her rights to her husband’s 401(k) funds by signing a postnuptial agreement was invalid because the agreement was written incorrectly. As a result, she didn’t waive her rights and inherited the money that was supposed to be paid to her husband’s parents. (MidAmerican Pension and Employee Benefits Plans Administrative Committee v. Michael G. Cox, Sr., et al., No. 12-3563, U.S. Court of Appeals, 8th Circuit, July 12, 2013)
Michael Cox worked for MidAmerican Energy Corporation and participated in the “MEC 401(k).” Between 1997 and 2004, Michael and Kathy Cox had been twice married and divorced. In September 2004, while he was single, Michael named his parents as the beneficiaries of his MEC 401(k). Afterwards, in 2010, Michael and Kathy remarried each other for the third time!
Before the third marriage however, the couple signed a prenuptial agreement. Apparently, for some reason they had some concerns about whether the marriage was going to last. To the couple’s credit, or perhaps to that of their advisors, they knew that a prenuptial agreement could not be used to waive spousal rights in a 401(k) plan (only a spouse can waive those rights). So, three weeks after they were remarried, they re-executed the same prenuptial agreement on March 26, 2010. At this point the prenuptial agreement was now a postnuptial agreement.
See also: What most retirement gurus get wrong
The agreement said that, in the event the marriage ended, they each waived their rights to each other’s property. With respect to Michaels’s 401(k), the agreement specifically stated that Michael’s 401(k) would remain his, and that Kathy disclaimed all rights to it, and agreed not to seek a qualified domestic relations order (QDRO) in a future divorce with respect to the 401(k) plan.
The postnuptial agreement also addressed Kathy’s rights under ERISA (Employee Retirement Income Security Act) as a surviving spouse beneficiary of Michael’s 401(k). It said that Kathy irrevocably consented to any change in beneficiary or form of benefit payments, without requiring her further consent. It also said she agreed to consent, in writing, to waive her rights to his retirement assets at any time.
A little over a year after their third remarriage, Michael filed for divorce on May 4, 2011. The divorce documents referenced the postnuptial agreement he and Kathy had signed, and requested that their property be divided according to it. However, Michael died seven days later on May 11, 2011, before the divorce was finalized. At the time his most recent marriage to Kathy had been for more than one year.
After his death Michael’s parents and Kathy argued over who should receive the 401(k) funds. The 401(k) plan administrator believed the parents should get the money and sent Kathy a letter to sign a waiver to any rights in the 401(k) plan. She refused to sign that waiver. The plan administrator then filed an “interpleader” action in which it asked the Court to decide who should get the money.