You and your spouse have recently divorced, and the judge has signed the divorce decree. Now what? Although you may feel that you have spent enough time and money on lawyers, there is one last attorney you need to talk to: an estate planning attorney. If you and your former spouse created an estate plan or named each other as beneficiary on any of your accounts or property (assets) while you were married, your divorce decree or state law may automatically revoke parts of that plan—particularly provisions naming your former spouse for decision-making roles such as executor, trustee, and agent under powers of attorney. However, not all changes happen automatically, and your former spouse could still remain a beneficiary of your trust, a joint property owner, or a named beneficiary on your assets. Additionally, appointments involving your former spouse’s family members are usually not revoked by law and may still be in effect. That is why it is necessary for you to review your estate plan with an attorney to ensure that your hard-earned money and property is distributed in a way that aligns with your new goals and life circumstances. If you have not done any planning since your divorce, now is the perfect time to get your affairs in order.
When you meet with the estate planning attorney, it is crucial that you bring all necessary documents, including a copy of your divorce decree. This document will help determine what obligations need to be included in your estate plan, what assets you now own, and how those assets are titled.
What Is in a Divorce Decree?
Support Obligations
Your divorce decree may state that your spousal or child support obligations require you to purchase life insurance to address the possibility that you pass away before fulfilling the entire obligation. If you have a child support obligation, it may be wise to designate your living trust as the beneficiary of the life insurance policy, if the terms of the divorce decree so permit. This approach would allow distributions to the minor children to be made by a trustee instead of as a lump-sum payout to your former spouse, who may not use the funds as intended.
Property Division
The divorce decree will also contain a section on the division of your marital property. It is extremely helpful to provide this information to the estate planning attorney to present an accurate picture of your current property and financial accounts.
In addition to identifying the assets you now own, how you own them is incredibly important. Ownership of assets previously owned by you and your former spouse as joint tenants or joint tenants with right of survivorship may have changed to ownership as tenants in common under state law. This change is important to understand because, if you had passed away before your divorce, your now-former spouse would have automatically received your interest in the asset. However, if the ownership has changed to tenants in common, your interest will likely go to someone else when you pass away. If you do no planning, your interest in the asset will be transferred according to state law, which may not coincide with your wishes. It may go to your children, parents, or siblings, depending on who survives you. As part of your estate plan, you can choose who will receive your interest and how they will receive it.
What Effect Does the Divorce Decree Have on an Existing Estate Plan?
Last Will and Testament
Depending on the state in which you live, divorce can have a varying impact on your will. In Texas, when you and your spouse divorce, the law treats your former spouse as “having predeceased you.” Meaning that should your will be probated, money and assets would skip over your ex-spouse and go to the next in line (often times your children), and your former spouse would not be able to serve as your Independent Executor.
While this automatic revoking of gifts to ex-spouses happens to your will, gifts to your former spouse’s relatives—such as in-laws or your stepchildren—are not necessarily revoked. That is why it is essential to promptly update your estate plan to reflect any changes you wish to make.
Revocable Living Trust
Much the same as a will, a divorce between grantors (those spouses who create joint trusts together) will mean the trust will treat the spouses as having “predeceased each other” so assets would pass to the remaining beneficiaries, which are often the children of the marriage. Additionally, trusts written by experienced estate planning attorneys will state that if there is divorce, any beneficiaries who are solely related to one spouse are deemed to have predeceased the other.
Example: Bella and Edward Cullen get married and they set up a trust for their family and ultimately their daughter, Renesmee. In the trust, they also make some specific gifts to Bella’s dad, Charlie, and to Edward’s sister, Alice. A well written trust states that should Edward and Bella ever divorce, as regards Alice’s inheritance, she will be deemed to have passed away before Bella. And as regards Charlie’s inheritance, he will be deemed as having passed away before Edward.
This does not address the question of fiduciaries. Meaning that if Bella and Edward named Alice as the trustee of any trusts funded for Renesmee (if something were to happen to both Edward and Bella), the divorce does not automatically remove Alice as trustee for Renesmee. This makes it all the more important each of Bella and Edward to visit with a separate estate planning attorney, to update their plans to reflect the change to their lives.
Financial Power of Attorney
In Texas, among other states, filing for divorce revokes the former spouse’s appointment as agent (the person who would act on your behalf) under a financial power of attorney. In still other states, however, a divorce does not revoke your spouse’s ability to act as your agent. Regardless of whether you’re getting divorced in Texas or not, if there are any outstanding powers of attorney on file with third parties (e.g., at your bank or with a financial advisor), inform them of your divorce and provide them with a revocation or an updated power of attorney so they know that your former spouse is no longer authorized to act on your behalf.
Medical Power of Attorney
As with other estate planning documents, state laws vary as to whether your former spouse will still be able to make medical decisions for you if you are unable to make or communicate them yourself. As mentioned before, divorce in Texas automatically revokes your spouse’s designation as agent. However, the moment to quibble about this is not when an Agent is trying to use your Medical Power of Attorney on your behalf. Therefore, it’s best to update your documents with your attorney and share them with your medical providers and newly named Agents.
Life Insurance
Because a life insurance policy is a contract with a third party, a divorce typically has no effect on the beneficiary designations. If you named your former spouse as a beneficiary of the policy prior to your divorce, most states will not automatically revoke that designation after a divorce. Even if the designation is revoked under state law, it is important that you change the beneficiary designation so the company is on notice of your wishes and to avoid any confusion.
There have been some cases, where although the former spouse is no longer entitled to the life insurance proceeds, if the insurance company is not informed of the divorce or given an updated beneficiary designation, the benefit will be paid out to the named beneficiary (former spouse), and it will be the rightful beneficiary’s responsibility to sue and collect the proceeds from the former spouse. No matter what the applicable state law says, it is important to review and update your beneficiary designations after a divorce to avoid unnecessary drama and confusion.
Retirement Accounts
For retirement accounts governed by the Employee Retirement Income Security Act of 1974 (ERISA), such as 401(k)s, beneficiary designations are not automatically revoked upon divorce. Even if state law would otherwise remove a former spouse, ERISA preempts state law. To ensure that your former spouse does not receive the benefits, you must affirmatively change the beneficiary designation unless your divorce decree requires you to keep them as the beneficiary.
You Need an Estate Plan Now More Than Ever
As a newly single person, you are now in full control of your money and property. If you do not have an estate plan in place, state law will determine what happens to your hard-earned money and property. If you already have estate planning documents in place, you need to review them now that your circumstances have changed. Even if gifts to your former spouse are revoked under state law, you need to ensure that the alternate plan built into your documents is still what you want. Call us today so we can schedule an appointment to protect your new future and those you love, and do not forget to bring the divorce decree. Nielsen Law PLLC provides family-focused estate and business planning to individuals and families in Austin, Round Rock, Cedar Park, and the Central Texas area. For more information, and to learn about our firm, please contact us. We look forward to working with you.
