Travis H. Long, CPA, Inc. Blog

Originally published in the Cedar Street Times

December 14, 2012

As professionals dealing with trust and estate issues, CPAs and attorneys talk a lot about making sure your beneficiary designations are up-to-date on any kind of retirement assets you may own, as they generally trump your estate plan.  There are many sad stories of widows or widowers losing assets to their deceased spouse’s ex-wife or ex-husband simply because they did not update the beneficiary designation forms.  But sometimes, even that is not enough.

At a tax seminar I attended last week, we discussed an interesting court case which makes you think you can never be too careful.  The case goes something like this: Wayne and Cleta Lee were married in the state of Washington in 1979.  In the early 1990s, Wayne moved to Mississippi.  They never got a divorce, but they went their separate ways.  In 1995, Wayne decided to marry a woman in Mississippi named Lois, but he did not bother to divorce Cleta.

Wayne was an electrical worker and was entitled to a pension when he retired in 1997.  On the pension application he listed himself as married and Lois as his wife.  He designated her specifically as the beneficiary and even attached a copy of the marriage certificate.  They both signed the application and he started receiving his pension.   In January 2007 Wayne passed away and Lois started receiving pension benefits in February.  Later that month, his first wife from Washington applied for pension benefits from the company as well!

The case eventually went to court and the district court ruled in favor of Lois since she was specifically identified in the pension application as the beneficiary for spousal benefits.  Cleta appealed and the case went to the U.S. Court of Appeals.  The U.S. Court of Appeals cited Employee Retirement Income Security Act (ERISA) rules and state laws and said the district court made its decision on the wrong basis.  They overturned the ruling and have now sent it back to the district court to determine the legal spouse.  They said the benefits go to the legal spouse at the time of his passing regardless of who was specifically named as the spouse.  If the district court determines Cleta to be the legal spouse, which the U.S. Court of Appeals hinted at quite heavily, Lois will lose out on her pension benefits.  (IBEW Pacific Coast Pension Fund v. Lee (2012) U.S. Court of Appeals for the Sixth Circuit, Case No. 10-6433)

So for all of you with spouses that have multiple wives or husbands, you may want to have a little chat!  Obviously the scary situation would be if you never knew your spouse was not officially divorced from a prior marriage, or worse, never knew they were married before.

Does this mean we will be advising clients in the future to have background checks done before picking out a ring?  I sure hope not.

Prior articles are republished on my website at www.tlongcpa.com/blog.

IRS Circular 230 Notice: To the extent this article concerns tax matters, it is not intended to be used and cannot be used by a taxpayer for the purpose of avoiding penalties that may be imposed by law.

Travis H. Long, CPA is located at 706-B Forest Avenue, PG, 93950 and focuses on trust, estate, individual, and business taxation. He can be reached at 831-333-1041.