Estate Planning and Divorce

I get many calls from people who are going through a divorce who want to know how their estate plan will be affected. My first answer is that it depends upon where you are in the divorce process and what your existing planning documents look like. Of course it also depends on the nature of your assets (community property or separate property) and if you have any pre- or post-marital agreements.

Married couples often execute reciprocal estate plans. That is, husbands and wives leave a majority of their assets to each other and name the other as decision maker in the event they become incapacitated. If you have made the decision to divorce, most likely you will not want your spouse to inherit your separate property or your share of the community property. Whether those assets are set to pass by will, revocable trust, or even the intestacy statutes (if you die without a will), those provisions remain in effect until the divorce is final.

During the divorce proceeding there is a limbo period in which the spouse you are in the midst of divorcing could still inherit your estate if you die or be in the position of making medical decisions on your behalf if you become incapacitated. After the divorce the California Probate Code provides that certain documents written in favor of a former spouse, such as a will or revocable trust, are automatically revoked as to that person. The problem is that until he or she is your former spouse, s/he remains an heir or beneficiary under your will and any “non-testamentary” transfers are still perfectly valid. (Non-testamentary transfers include property held in joint tenancy or POD accounts and property passing by beneficiary designation such as life insurance, annuities and retirement plans). At this point there are several steps you may take to make sure your assets do not inadvertently pass to your spouse.

[Note: Once you file for a divorce, you are bound by the automatic temporary restraining order (“ATRO”), placing certain restrictions on modifications to your estate plan and of course barring major changes to the financial status quo.]

The first thing to do is revoke your current will and execute a new one. This can be done at any time. Even with the ATRO in place both parties are free to create a new will, or modify or revoke an existing will. Your assets will now need to be probated if you die, but at least they pass to people you want. If you have set up a revocable trust for estate planning, a new trust can be set up, but not funded (a “dry” trust). To fund a new trust you now need the consent of the other party or a court order.

Other estate planning tools may be revoked only with prior notice to the other party. This includes revoking a revocable trust or severing a joint tenancy or community property with right of survivorship. Of course, this works both ways: if your spouse dies prior to the entry of a final judgment, you will not automatically inherit your spouse’s share of the property either. Finally, modifying non-probate transfers now require the consent of the other party, including removing your spouse as a beneficiary from life insurance, IRAs, employee pension plans and the like.

If the divorce is final the ATRO has been lifted it means that your spouse is now automatically written out of your estate plan as if he or she had predeceased you. His or her interests automatically pass to secondary beneficiaries or under the intestacy statutes if no secondary beneficiaries are named. That does not mean you should do nothing, however, because some employee benefits and pension plans are governed by federal law, which DOES NOT automatically terminate a former spouse’s interests. Be sure that the beneficiary designations are changed following the applicable procedure required by federal law.

If you have not already done so, it is time to make sure you execute a new will or revocable trust. It is also time to make sure you have a guardian named for your minor child, and a heath care power of attorney for yourself-naming a close friend, relative, or some other trusted person in your life to act for you in the event you are not able to do so. If one parent has sole custody, the noncustodial parent will need a health care power of attorney to authorize medical care for your child in case of an emergency. With proper planning, you will have the piece of mind that comes with making sure that all the necessary documents are in place to fully effect your wishes in regard to these critical issues.