When marriage and individual retirement accounts meet, federal – not state – law usually prevails. This isn't to say, however, that state laws have no effect. They dictate what happens to your IRA in a divorce, and what right your wife has to a portion of it.
Unlike 401(k)s, the Employee Retirement Income Security Act doesn't cover IRAs. This means that you have a lot more leeway when naming or changing a beneficiary. With an ERISA plan, your wife is automatically the beneficiary. You must take deliberate steps to override this and remove her, and you’ll need her consent. IRAs have no "automatic" beneficiary. If you don't name one, your IRA won't go to your wife when you die – it will go to your estate. If you want your wife to be the beneficiary, you must specifically say so by completing a beneficiary designation form. If you don't want her to be the beneficiary, you can name someone else.
Community Property Exception
An exception to the rule about changing your IRA beneficiary exists in community property states – but Illinois isn't one of these states. In community property jurisdictions, your wife owns half the marital portion of your IRA by operation of law. This means you can't bequeath her 50 percent share to another beneficiary without her approval. If you try, the court will preserve her share and order it returned to her in the event of your death. Illinois is an equitable distribution state, which means that your wife's share of your retirement account must be established by the court after weighing several factors. This can't happen unless or until you divorce and ask a court to divide your marital property. You don't need your wife's consent to remove her as beneficiary while you're married because no one can say in advance exactly what her share is, or if she even has a share at all – although she probably does.
As a practical matter, Illinois courts usually divide retirement plans 50-50 in a divorce. Although equitable distribution law allows for an unequal division of property, the purpose of this is to make sure that one spouse isn't left with no way to replace marital assets post-divorce because her earnings aren't sufficient. After retirement, your earning capacity can be expected to diminish as well, so it's unlikely a court will give your wife more than 50 percent of your IRA – you'll need that money as well. A court also is not likely to give you more than 50 percent just because you’re not earning as much as you used to. In both community property states and equitable distribution states, only the marital portion of your IRA is divided: the portion that you earned or that accrued from the date of your marriage through the time of divorce.
If you want to remove your wife as beneficiary of your IRA, it may be because your marriage has hit a rough patch and you're uncertain that it will last. Because you don't need her consent to change the beneficiary, you should do so sooner rather than later if this is the case. If you don't change your beneficiary and if you should die without doing so, your wife will receive the entirety of your IRA whether you intended it or not. This would include both the marital portion and that which is your separate property because you earned it before or after the marriage. A divorce decree can't override a beneficiary designation, nor can your will.
Beverly Bird has been writing professionally for over 30 years. She specializes in personal finance and w, bankruptcy, and she writes as the tax expert for The Balance.