What Happens To Your 401(k) If An Ex-Spouse Is Listed The Beneficiary

Workplace retirement plans like 401(k)s are among the most powerful tools for building long-term wealth, yet they are also among the easiest to overlook during major life changes. According to a 2025 study, people aged 45 to 54 have an average retirement savings of $188,643. Additionally, later life divorce and baby boomer divorce rates inn retirement appear to be growing. After a divorce, many people remember to close joint accounts and revise their estate plans but forget to review one key document that controls who receives their 401(k) when they die: the beneficiary designation. Failure to update your 401(k) account with a new beneficiary could cost your heirs and other loved ones your retirement account.

The 401(k) beneficiary form names the person who will inherit your account after your death and acts as a binding agreement between you and the plan administrator. If an ex-spouse remains listed, that person, your ex-spouse, may still inherit the entire balance, even if your will or divorce decree says otherwise. This comes as a shock to almost everyone, including the ex-spouse who might receive the account.

Why 401(k)s Rules Can Offer A Surprising Outcome

Unlike IRAs, which are governed by state law, 401(k)s fall under federal law through the Employee Retirement Income Security Act, or ERISA. This distinction is critical because ERISA, through a rule called Federal Preemption, generally override state divorce laws, contracts, and even some state court orders regarding divorce. In short, federal laws control over state laws.

In practical terms, this means your employer’s retirement plan administrator must distribute your 401(k) funds according to the beneficiary form on file, regardless of any conflicting documents like a contract, divorce decree, or other written agreement. Even a divorce settlement that clearly states your ex-spouse has waived rights to the account cannot override that designation. You might have negotiated that you keep your 401(k) and they get other assets. But unless you update your beneficiary designation this agreement is not yet complete.

The Supreme Court made this clear in Kennedy v. Plan Administrator for DuPont Savings and Investment Plan (2009), where an ex-wife received her former husband’s plan assets despite a divorce agreement stating she had no claim. The Court ruled that the plan administrator was legally bound to follow the plan documents, not the divorce terms.

Why Divorce Does Not Automatically Fix The Problem

Many people assume that the divorce process automatically removes an ex-spouse from their 401(k) plan, but that is not the case. Under ERISA, a 401(k)-plan administrator cannot assume that your intent has changed without a new, signed beneficiary form.

In some cases, even if you live in a state where the law would automatically revoke an ex-spouse’s status, ERISA preemption does not apply to your employer-sponsored plan. The only way to ensure your wishes are followed is to submit a new beneficiary designation directly to the plan administrator.

However, if the ex-spouse agreed to give up any rights to the 401(k) as part of the divorce, the surviving heirs could file a lawsuit against the ex-spouse for recovery as a breach of contract. This could be a costly and challenging legal process though for your heirs after you are gone. Lastly, your 401(k) plan documents could be amended to state that divorce terminates any beneficiary rights under the plan. However, it is not super normal for 401(k) plan documents to have a clause that impacts ex-spouses.

The Spousal Consent Rule For 401(k)s

One unique aspect of 401(k) plans is the federal spousal consent rule. If you are married and want to name someone other than your current spouse as the primary beneficiary, your spouse generally must sign a written consent form. This rule is designed to protect current spouses, but it also means that any oversight can cause an ex-spouse to remain listed until formal consent is provided by your new spouse if you forgot to change this before getting married again.

This detail is especially important for anyone who remarries. If you forget to update your beneficiary, your former spouse could still legally receive the account, even if your new spouse assumes they will inherit it. If the new spouse is only married to you for less than one year before you die and you do not update the beneficiary designation they likely will not be entitled to the account under ERISA. However, if you get remarried and die after a year, the new spouse likely will have a claim to the benefit. But from a practical standpoint, the plan administrator could still issue payment to the ex-spouse if they were on the forms. Possibly creating an ugly battle to recoup the funds.

Let’s look at another potential beneficiary designation. If you are married at death, and have been married for more than one year prior to death, the surviving spouse is presumed to be the beneficiary even if someone else is listed. Perhaps you listed your ex-spouse on purpose or children from you first marriage. This could create a situation where your current spouse is entailed to the accounts unless you made sure they put their beneficiary waiver on record with your plan administrator.

Make Sure Your Beneficiary Reflects Your Wishes

Updating a 401(k) beneficiary is straightforward but often delayed because the account sits with an employer or third-party administrator rather than with your financial advisor. Out of sight usually means out of mind.

To ensure your 401(k) passes to the right person, follow these steps:

1. Contact Your HR Department or Plan Administrator: Request a copy of your current beneficiary form. Many plans allow you to view and update this information online.
2. Submit a New Designation After Major Life Changes: File a new form immediately after a divorce, marriage, or death in the family. Do not rely on your employer to update it automatically. Review the percentages you want to leave to each person and make sure you have a successor, back up beneficiary on file also.
3. Coordinate With Your Estate Plan: Confirm that your retirement plan designations align with your will, trust, and insurance documents. Consistency helps avoid legal disputes and confusion later.
4. Keep Records and Notify Your Family: Keep copies of all forms and share updates with your spouse or executor, so everyone understands your intentions.

Protecting What You’ve Built At Work

Because a 401(k) can be one of your largest and most valuable assets, it can also be one of the easiest to misdirect after a divorce. The federal rules that govern these plans are clear: the beneficiary form on file determines who inherits the money, no matter what your other documents say.

By taking a few simple steps now, including reviewing your beneficiary designations, sketching out your plan designs, communicating with your plan administrator, and coordinating with your estate plan, you can avoid a costly mistake and make sure your retirement savings go to the right person. Proactive planning is the best way to protect your legacy and ensure that your life’s work benefits the people you truly intend to support.