FINRA Panel Finds Ex-Wife Is IRA Beneficiary

Newman Trowbridge Jr., an attorney, opened an IRA with Capital One Investment Services’ predecessor in 1994. The account named Trowbridge’s wife as beneficiary, and Rick E. Schenck Sr, a registered representative, later “inherited” the account. Trowbridge and his wife divorced, he later remarried, and subsequently changed the beneficiary of several of his accounts from his ex-wife to his estate.

Trowbridge died in 2009 and his widow obtained an order requiring all account holders to pay owed funds to the estate. Capital One paid the IRA balance to Trowbridge’s ex-wife, however, because Trowbridge had failed to remove her as the named beneficiary.

The estate filed a FINRA arbitration claim against Capital One and Schenck alleging breach of fiduciary duty and negligence. The defendants claimed that the order did not cover the IRA because the IRA passed outside the estate.The estate raised a “Know Your Customer Rule” claim during arbitration, arguing that the defendants owed a duty to review named beneficiaries to ensure the designations reflected changes in Trowbridge’s life.

During arbitration, the FINRA panel found that the order did not cover the IRA and dismissed the estate’s case, recommending that the matter be expunged from Schenck’s Central Registration Depository records.

See Bill Singer, The Lawyer, the Stockbroker, the Ex-Wife, and the Widow, Insurance News, Aug. 2, 2011.

Special thanks to Jim Hillhouse (WealthCounsel) for bringing this article to my attention.