Divorced From You, Still Married to Your Money

These simple steps will ensure your retirement and insurance money ends up in the right hands.

As you may already know, June is the most popular month in this country for weddings. So now that the marrying month is almost over, I thought it might be a good idea to turn the focus to - what else? - divorce!

I don't mean to be a downer about it, but the reality is, the divorce rate in America has hovered pretty close to the 50% mark for years now. And while there are lots of financial (not to mention emotional) complexities related to divorce, financial planners say one of the most common mistakes people make after getting un-hitched is simply failing to update the beneficiary forms on their retirement accounts.

And that can lead to all kinds of unintended financial consequences years, or even decades, down the road.

Here's why: if you get divorced, you'll probably make a point of updating your will to exclude your ex-spouse. But what you may not realize is that your will has no bearing whatsoever on who inherits any money sitting in your qualified retirement accounts - including an IRA, 401(k), 403(b) or traditional company pension plan - at the time of your death.

And that means you might unwittingly be enriching your ex-spouse - while simultaneously cutting off the people you really want to leave your money to. "It happens all the time," says Howard Hook, a CPA and financial planner with Roseland, NJ-based Access Wealth Planning.

Nor does your will dictate who stands to collect on any of your life insurance policies. For those items - which can run into the hundreds of thousands of dollars or more - the person who gets the cash is usually the one you named on the beneficiary forms all those years ago. "The beneficiary designation supersedes the will," says Hook.

And it doesn't matter how long ago you named the beneficiary - a spouse you divorced 30 years ago will, in most cases, get every penny if his or her name is on the form.

The bottom line: Once you're finished updating your will, go back and check all the paperwork for your retirement and insurance accounts. Removing your ex-spouse as the beneficiary is usually as straightforward as getting your hands on a new form and filling it out.

And no, you don't need to inform your ex that you've made the switch, says Hook.

Just don't try that maneuver if you're still married. You can't remove your spouse as beneficiary on a company-sponsored retirement account like a 401(k) or traditional pension without his or her signed consent. (Although in some states, you can make such a move with your IRA.)

Finally, notes Hook, it's a good idea to periodically review your beneficiary designation forms even if you're not getting divorced. You may have other reasons to update your beneficiary forms - to add a new child or grandchild to an insurance policy, for instance. Periodically requesting a copy of the form on file can save your heirs time and legal fees - and most importantly, make sure your money ends up in the right hands.

Questions or comments about retirement? Send e-mails to jrevell@moneymail.com.