The Lazar Case: When Divorce Automatically Revokes an IRA Beneficiary

Retirement planning often comes down to the details. Yes, the investments, tax strategies, and long-term goals matter, but sometimes the simplest form, like a beneficiary designation, ends up controlling everything.

What happens if you name your spouse as the beneficiary of your IRA, get divorced, but never update the form? Does your ex-spouse still inherit? 

That question was at the heart of the Lazar v. Kroncke case, decided by the Ninth Circuit Court of Appeals in 2017 and left standing by the U.S. Supreme Court in 2018.

The outcome gives a pretty clear picture of how state laws can automatically revoke an ex-spouse’s rights to inherit an IRA after divorce, and why you cannot afford to ignore your beneficiary forms.

This ties into your company having potential implications, too—we’ll touch on a specific PG&E case later on and how you can be proactive.

The Case: Lazar v. Kroncke

Here’s how it all unfolded:
• Allen Lazar owned an IRA. He had named his wife as the primary beneficiary.
• Allen and his wife later had their differences and divorced, but he never updated his IRA paperwork. Unsurprisingly as a result, she remained listed as a beneficiary.
• When Allen passed away, his ex-wife filed a claim to inherit the IRA.
• According to Arizona’s revocation-on-divorce law, when a divorce occurs, an ex-spouse is automatically taken off as a beneficiary unless the account owner specifically adds them in again after the marriage ends.
• Allen hadn’t re-designated her. His children argued that the IRA should pass to them.

In July 2017, the Ninth Circuit Court of Appeals agreed with the children. The court ruled that Allen’s ex-wife was no longer a valid beneficiary under state law.

When she appealed to the U.S. Supreme Court, the Court denied review in June 2018, effectively allowing the Ninth Circuit’s ruling to stand.

Why This Matters

The Lazar case built directly on the Supreme Court’s earlier ruling in Sveen v. Melin (2018), which upheld Minnesota’s similar revocation-on-divorce statute for life insurance policies.
Together, these cases made three key points clear:

1. State revocation-on-divorce laws are valid. Courts will enforce them, even if the beneficiary form was never updated.
2. These laws apply to IRAs. It’s not just about life insurance; it also extends to other non-probate assets, like retirement accounts.
3. Divorce itself can change your estate plan. If you don’t re-designate your ex-spouse, the law may erase them automatically.

This is generally good news for families who might otherwise lose their assets to an ex-spouse, but it also introduces a good amount of complexity. See, not all states have these laws, and federal rules don’t always match up.‍

ERISA vs. State Law: Why Some Accounts Are Different

Here’s where things tend to get tricky. The Lazar cfase involved an IRA, which is not governed by ERISA (the federal law covering employer-sponsored retirement plans). That’s why state law applied.

But if Allen’s account had been an ERISA-covered 401(k) or pension, the outcome would have been much different.

• IRAs and life insurance (non-ERISA): State revocation-on-divorce laws can remove an ex-spouse as beneficiary.
• 401(k)s and pensions (ERISA): Federal law requires the plan to honor the name on the form, even if it’s an ex-spouse, unless the account owner files a new form or the spouse signs a waiver.

This split creates one of the most important planning lessons: you cannot assume all your accounts follow the same rules.‍

The Planning Lessons

The Lazar case offers several key takeaways:

1. Don’t Rely on Divorce Decrees Alone.
   A divorce decree may settle property division, child support, or alimony, but it doesn't automatically update your financial accounts for you. You’ll need to change the beneficiary forms yourself, or risk potentially years of litigation.
2. State Law May Help, But It Is Not Universal
   Arizona’s law removed Allen’s ex-spouse as beneficiary. Many states have similar rules, but not all of them. If you live in a state without a revocation-on-divorce statute, your ex could still inherit if you don’t act.
3. Contingent Beneficiaries Are Critical
   Allen’s children inherited because they were listed as contingent beneficiaries. If there had been no contingent, the IRA would have gone into his estate, triggering probate and potential family disputes.
4. ERISA Accounts Must Be Handled Separately
   If you have a 401(k) or pension, divorce will not automatically remove your ex-spouse. For PG&E employees, this means your Retirement Savings Plan and pension need special attention. Update those forms directly with the plan administrator.

A Practical PG&E Employee Example ‍

Let us imagine a PG&E employee named Susan:
• Susan names her husband Mark as beneficiary of her PG&E 401(k), pension, and an outside IRA.
• They later divorce. Susan never updates her paperwork.
• Years later, Susan passes away.

Here’s what happens:
• PG&E Pension (ERISA): If Mark is still listed, he may inherit unless Susan filed a new beneficiary form or he waived his rights.
• PG&E 401(k) (ERISA): Same outcome, the form controls, even after divorce.
• Outside IRA (non-ERISA): If Susan lives in a state with a revocation-on-divorce law, Mark is automatically removed as beneficiary. The IRA would pass to her contingent beneficiary or her estate.

The result? Different accounts could end up with different heirs, with some going to Mark and others to Susan’s children. This kind of patchwork outcome is exactly what families want to avoid—and for good reason, too.

Why Beneficiary Reviews Are So Important

The Lazar case is a cautionary tale, but the solution is simple: regularly check-in, review and update your beneficiary forms.

Here are a few opportune times to consider checking them:
• After divorce or separation
• After remarriage
• After the birth or adoption of a child
• After the death of a spouse or child
• Any time your financial or family situation changes

The reality is that updating a beneficiary form often takes just minutes, but it prevents years of confusion and conflict.‍

Common Mistakes People Make

1. Leaving an ex-spouse on the form. Even if state law might remove them, don’t rely on it. Update forms proactively, and don’t leave it to chance.
2. Not naming contingent beneficiaries. Without them, assets may default to your estate and go through probate.
3. Assuming wills and trusts override forms. Beneficiary forms usually control, no matter what your will says.
4. Forgetting about old accounts. An IRA opened 30 years ago can cause just as much trouble as your current 401(k).

Action Steps for PG&E Employees

1. Request Your Forms. Contact PG&E’s benefits department and ask for copies of your pension and 401(k) beneficiary forms.
2. Review All Accounts. Include IRAs, annuities, and life insurance policies.
3. Update Immediately After Divorce. Do not wait; make changes as soon as the divorce is finalized.
4. Work with an Advisor. A financial planner can help coordinate your accounts and estate plan so that everything aligns, without you stressing about it.

The Lazar case shows how divorce can dramatically affect your retirement plan, sometimes in ways you do not expect. While state laws like Arizona’s can protect families from an outdated form, you should never rely on the courts to clean up your plan.

Treat your beneficiary forms like living documents. Update them after every major life event and review them regularly. It is the easiest way to make sure your money goes exactly where you want it to, without leaving your family tangled in legal battles.