Common Law Spouse Wins Right to Plan Distributions

Once two 401(k) plan administrators learned a dead participant’s common-law spouse was legally validating her marital status, the plans should have postponed distribution of the participant’s balance until the issue was settled, a federal appellate court has ruled.

The decision from the 10th U.S. Circuit Court of Appeals came in a case filed by Lilirae Smith who claimed she was the rightful beneficiary of deceased participant Leonard C. Begay Sr.’s balance in the New Mexico Coal 401(k) Personal Savings Plan and USA Retirement Savings Plan. Smith asserted that the plans had mistakenly distributed Begay’s balances to his children.

U.S. District Judge Robert C. Brack ruled for the plans, but the 10th Circuit overturned the decision and sent the case back for additional proceedings.

Smith claimed she had a common-law marriage with Begay from October 1988 to the date he died in a November 2004 auto accident, according to the appellate court opinion. Even though Begay’s home state, New Mexico, does not recognize common law marriages, the Navajo nation does, so Smith turned to a Navajo court for validation of her relationship to Begay.

The appellate court declared that Smith’s request to a Navajo nation court to affirm her marital status was key to the case because once the plans became aware of the Navajo proceedings, they had no authority under the plan rules to complete a distribution.

The 10th Circuit judges pointed out that plans had authority to rely on information on beneficiary designation forms unless they became aware of “conflicting information.” Despite the fact that one plan had a beneficiary form only mentioning the children and the second had no designation, the plans were obligated to hold off paying out Begay’s balance until they could consider the conflicting information, the court asserted.