What Separation and Divorce Do to an Estate Plan
When two married people decide to have their estates planned, they usually do so with the expectation that they will remain married until one of them dies. To this end, each spouse will typically name the other as executor of their will, trustee of any trusts, and as agent under health care and financial powers of attorney. They’ll also name one another as beneficiaries. But what happens if the couple divorces after executing their estate planning documents? Do the parties remain entangled with one another via their estate plans?
The answer, as we’ll see, is a little bit complicated. While there are provisions in the law that will remove a former spouse from estate planning documents upon divorce, these provisions have shortcomings that people should be aware of. In this month’s blog post, I’ll discuss what the law does and doesn’t do to estate planning documents when married couples divorce. If you are going through or have been through a divorce and would like to update your estate plan in light of this major life event, feel free to get in touch to schedule a free consultation.
The laws dealing with health care powers of attorney, general powers of attorney (sometimes called “financial powers of attorney” or “durable powers of attorney”), wills, and revocable trusts will cause Ex-Spouse #1 to no longer be able to serve in the important fiduciary positions to which they are appointed in Ex-Spouse #2’s documents (and vise versa). Furthermore, each of the ex-spouses will no longer be able to inherit under the will or revocable trust of the other ex-spouse. All of this is true despite the ex-spouse’s name continuing to appear in the documents which were executed pre-divorce. While this is certainly a good start, the law fails to address all of the potential problems that can arise if pre-divorce estate planning documents are allowed to continue on in effect. For this reason, it’s often best for individuals to consult an attorney to make sure they have an estate plan that is best suited to their life after divorce.
While the law does a good job of removing an ex-spouse from the picture from an estate planning perspective, the ex-spouse’s family remains very much in the picture unless new documents are executed which remove the former relatives-in-law. It is not unusual for married couples to name one another’s parents and/or siblings as backup agents under powers of attorney, backup guardians for minor children, or backup executors and trustees. Sometimes gifts are even made to the spouse’s family members. Following a divorce, the law leaves all of these appointments of and gifts to the ex-spouse’s family in place. New estate planning documents are necessary to undo these designations.
An estate planning attorney may also notice other issues which exist outside the estate planning documents themselves. If the divorcing parties take no action, they may still be named as beneficiaries on one another’s retirement accounts and life insurance policies (more on beneficiary designations here). They may also continue to be named on payable/transferrable on death accounts. The law makes no changes to these designations in response to a divorce. A good attorney can make sure these sorts of issues and others not addressed by the law are identified.
It’s also important to note that while the law automatically makes certain changes to estate planning documents after a divorce, it does almost nothing in response to a separation. Only the law on health care powers of attorney makes mention of separation. That means, for example, that if Spouse #1 dies after separating from Spouse #2 but before the divorce becomes official, Spouse #2 will still inherit under Spouse #1’s will or trust! (Note that Spouse #2 could receive at least something from Spouse #1’s estate by way of the elective share, but the elective share would likely convey less to Spouse #2 than would a gift under Spouse #1’s will or trust.)
A separation or divorce is already a painful experience. Unfortunately, without taking the necessary measures, there could be more pain ahead when unintended beneficiaries and fiduciaries remain embedded in estate plans. If you have experienced a separation or divorce and would like to understand how your estate plan is impacted, please get in touch to schedule a free consultation.
The information contained in this blog post is intended only as general legal information and should not be construed as formal legal advice on any matter, nor should its presentation be construed as intent on the part of The Law Office of Ryan A. Layton, PLLC to form an attorney-client relationship with any user of this website. For more information, please see this disclaimer.