Ex still beneficiary of retirement IRA

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Dear Dr. Don,
I had money put in an IRA account for my retirement before I married. I later listed my husband as primary beneficiary and my children as secondary beneficiaries. Now that he has left me, the bank will not let me take his name off as primary beneficiary.

Why is that when it is my own money and I should be able to leave it to anyone I want? The bank said even a divorce will not change the situation. The bank said he has to sign off on the change, or a judge has to declare that he be taken off. I need some input.
— Shirley Standoff

Dear Shirley,
There’s a difference between what the law requires and what a financial institution may require in naming a nonspousal primary beneficiary to an IRA. Some financial institutions require the spouse to sign off on not being primary beneficiary as a matter of policy, but it’s only required by law in community property states.

Nine states — Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin — are considered community property states by the Internal Revenue Service. In those states, community property includes real estate, tangible assets and the earnings both spouses acquired during the marriage. Assets acquired by gift or inheritance, or assets owned before the marriage, are not community property.

Your IRA may or may not be considered community property depending on when it was funded and whether you ever elected for it to become community property. You would have to discuss this with an attorney.

If you don’t live or bank in a community property state, you may be able to finesse the issue prior to a divorce by moving the IRA to a provider that doesn’t require the spouse to sign off on the nonspousal beneficiary. After the divorce, you wouldn’t have an issue, although he may be awarded part of the account in the divorce settlement.

Read more Dr. Don columns for additional personal finance advice.