Retirement accounts are among the more complicated assets to divide during a New Jersey divorce. This is not only because a lot is at stake when divvying up pension and 401(k) accounts, but also because such plans are often governed by federal law. Furthermore, retirement plans themselves may have their own tedious requirements for updating beneficiaries in accordance with a divorce settlement.

The U.S. Court of Appeals for the Eighth Circuit recently issued a ruling that illustrated how difficult it is to plan for the potential division of a retirement plan with a prenuptial or postnuptial agreement.

The case is a reminder that it is difficult for a spouse to waive his or her rights to retirement benefits.

The case involved a couple who married and filed for divorce three times. During the third marriage, the couple entered into a postnuptial agreement. The agreement stated, among other things, that each spouse agreed to changes to the other’s retirement plan beneficiary; the husband changed his beneficiary to his parents.

Before the third divorce became final, the husband died. The wife then fought for her right to the retirement benefits, and a court ultimately ruled in her favor.

The court’s ruling was based on the federal law that governs retirement plans, the Employee Retirement Income Security Act. ERISA states that in order for spouses to legally waive their rights to retirement benefits, they must meet a number of requirements. These strict requirements include waiving one’s rights in the presence of either a notary public or a representative of the retirement plan. Simply agreeing to give up one’s spousal rights to retirement benefits in a postnuptial agreement does not meet ERISA’s standards.

This case is a reminder that although prenuptial agreements, postnuptial agreements and divorce decrees are legal documents, they are not the be-all and end-all of property and asset division. There are often a number of steps that must be taken and conditions that must be met in order for the stipulations in such documents to be upheld.

Source: On Wall Street, “Appeals Court Holds Postnup Doesn’t Waive Spousal Rights to 401(k),” Donald Jay Korn, July 24, 2013