ERISA preemption of state community property laws

Many people obtain life insurance through their employer.  If it is through a private employer, the life insurance benefits are governed by a federal law: the Employee Retirement Income Security Act of 1974, commonly referred to as ERISA.

One of the key provisions of ERISA is its preemption clause. ERISA preempts state laws that relate to employee benefit plans. This preemption includes those state law related to community property interests.

Texas is a state that recognizes community property rights In Texas, property acquired during a marriage is considered community property, which means that both spouses have an equal interest in the property. This can include assets like retirement plans, pensions, and other employee benefit plans.

However, ERISA supersedes or preempts Texas community property laws. This means that, in the event of a divorce, a spouse's interest in an ERISA plan will be determined by the terms of the plan and federal law, rather than by Texas community property law.

In relation to life insurance benefits, that can mean that a spouse does not have community rights to the policy proceeds. The ERISA administrator, usually the life insurance company, is obliged by federal law to follow the terms of the ERISA plan.  The plan usually states that the administrator must pay the designated beneficiary, regardless of community property interests or the terms of most divorce decrees.  Decrees that comply with ERISA typically include QDRO provisions.

Even if a decree does not contain a proper QDRO, the decedent’s estate can bring a post-distribution claim for the life insurance benefits.  Please see this topic.

Many beneficiary disputes do not involve life insurance benefits.  Some involve disputes over 401(k) pension benefits. if a spouse has a 401(k) plan that is subject to ERISA, the plan may have specific rules regarding the division of assets in the event of a divorce. These rules may differ from what Texas community property laws would dictate. If the parties are unable to agree on how to divide the assets, the court may have to interpret the plan's rules and apply them to the division of assets.

ERISA preemption does not apply to all types of retirement plans. For example, IRAs and other non-ERISA plans may still be subject to Texas community property laws. However, for many employees with employer-sponsored retirement plans, ERISA preemption can have a significant impact on how their retirement assets are divided in the event of a divorce.

ERISA preemption can have a significant impact on how Texas community property laws are applied to employee benefit plans. If you are facing a dispute regarding the distribution of ERISA life insurance or 401(k) benefits, it is important to contact a lawyer experienced in evaluating such disputes.