Divorce does not effectively change a beneficiary designation unless the divorce decree makes a stipulation to change it.
It could be argued that the owner of an individual retirement account (IRA) wants the former spouse to remain the beneficiary of this IRA. So, unless a court order states otherwise, the former spouse is likely be entitled to receive the assets if he or she is the named beneficiary on record at the time of the IRA owner's death.
However, this may not be the case if the deceased resided in a community or marital property state. These states include Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washingtonm and Wisconsin.
If the IRA owner resided in one of these states and did not name his or her current spouse as the sole primary beneficiary, the designation naming the ex-spouse may not be valid if the current spouse did not consent to such a designation.
Note, however, that in a community or marital property state, the surviving spouse's entitlement to the IRA assets may be limited to what is defined by the state's law as community or marital property, and even then may be limited to a percentage of the amount. For instance, some states define marital property as the assets earned during the marriage and limits the spouse's entitlement to 50% of that property.
increasingly, retirement accounts are figuring in divorce settlements and the partitioning of assets. On the other hand, it's a common occurrence for an IRA owner to die having failed to change a beneficiary designation after a divorce, simply out of forgetfulness.
Some surviving spouses have taken the matter to court because they felt they should have been the designated beneficiary and that the IRA owner intended they be. If such a dispute arises, the IRA custodian will place a hold on the assets and await a ruling by the court. The custodian will generally abide by the court's ruling.
In the absence of a notification of any dispute, the IRA custodian will pay the assets to the beneficiary on record at the time of the IRA owner's death.