Q: True or False: If you are divorced and you were awarded your IRA or 401(K) your ex-spouse will not have any claim to the funds if you die before you change the beneficiary designations?
A: False– at least according to a recent decision by the Fourth District Appellate Court in Illinois.
On February 10, 2025, in Moen v. Kelly, 2025 IL App (4th) 240906, the Appellate Court ruled that because the divorce judgment did not waive any future expectancy or future beneficial interest in the husband’s retirement accounts, and the Husband did not change the designation of his ex-wife as the primary beneficiary on those accounts before he died, she was entitled to all of the funds, despite the fact that he was awarded the accounts as his sole and exclusive property in the divorce. The Court recognized a distinction between the ownership of an account versus a future expectant interest as a beneficiary in the account.
The Court explained that the “power of after-death disposition is a stick in the brush pile of ownership. Being awarded property, such as an account, means gaining the ability to control who will be the new owner after one dies (and either changing one’s mind inter vivos or not changing one’s mind about the after-death beneficiary).” Moen. at ¶ 16. But that means that failing to choose to change the beneficiaries might have unintended and disastrous consequences.
Of course, the best solution for divorcing parties is to be sure to change the beneficiary designations immediately upon the entry of the divorce judgment. According to Moen, if you have the following type of release language in your divorce papers you might be ok:
“ ‘[E]ach of the parties hereto does hereby forever relinquish, release, waive, and quitclaim to the other party all property rights and claims which he or she now has or may hereafter have *** in or to or against the property of the other party or his or her estate, whether now owned or hereafter acquired by such other party.’ ”
(Emphasis in original.)
Moen at ¶ 20 citing Herbert v. Cunningham, 2018 IL App (1st) 172135, at ¶ 46.
Interestingly, if you set up a trust account for your IRA or 401(k) that also might be a solution, because the current Illinois Trust Code section 605(b) of the Illinois Trust Code (760 ILCS 3/605(b) (West 2022)) automatically terminates expectancy interests held in Trust unless the Trust expressly provides otherwise.
However, the Moen decision provides a stark reminder that if you are divorced, it would be a good idea to check your divorce papers and how your retirement accounts are set up including the beneficiary designations before just assuming that your ex-spouse cannot claim any interest in those accounts
By Peter M. Storm
Storm & Piscopo, P.C.
At Storm & Piscopo, P.C., we handle a wide range of matters involving estate and trust planning as well as litigation in estate and trust matters for our clients.
