What Does Divorce Do to Your Estate Plan?
According to census bureau statistics, nearly half of married couples will at some time go through a divorce. If you are going through the divorce process, you’ve got a lot of company.
So, do you need a new will? What does the process of divorce do to your estate plan?
You need to remember that in Pennsylvania you are considered legally married until the judge signs the final divorce decree. There is no such thing in Pennsylvania as a legal separation.
This means that if you die before the divorce if final, your soon-to-be ex is still considered to be your husband or wife and is entitled, under Pennsylvania law, to claim his or her spousal share, approximately one-third, of your estate.
If you have a will giving everything to your spouse, and you die before the divorce is over, then the spouse gets everything! The will is still valid! It doesn’t matter if the divorce was been going on for 3 years. It doesn’t matter if you have been separated for 10 years. It doesn’t matter if the divorce will be final next week. It doesn’t matter if you’re living with a new boyfriend or girlfriend. The spouse gets everything unless you have changed that will. And if you have changed that will, your spouse may still elect to take his or her spousal share.
If you are in the midst of a divorce and die without a will, your spouse will be entitled to a share of your estate, as decided by intestacy laws, and he or she will also be in charge of the administration of your estate.
Once the divorce is final, if you don’t have a will, the state intestacy statute governs and your children would be your heirs, or if you have none, your parents, or brothers and sisters, etc.
If you made a will while you were married, and are then divorced, the will is still valid, but any provisions naming the former spouse are interpreted as if the former spouse had predeceased you. After the divorce is final, your will may be satisfactory, interpreted as if the ex-spouse had predeceased you.
This doesn’t apply to trusts, however. If your estate plan includes a trust, mentions of the ex-spouse must be affirmatively amended to be deleted.
It’s a different story with powers of attorney. Because most married couples name each other as the first choice of agent in their powers of attorney, Pennsylvania law protects people filing for divorce by automatically revoking the soon-to-be ex-spouse’s authority under the power of attorney. This makes good sense. Otherwise the power of attorney is a loaded gun: the soon-to-be-ex-spouse could be able to sell your house and clean out your bank accounts.
As a practical matter, however, the divorcing spouse may still be able to access the funds in your name. (Maybe I shouldn’t be writing this.) The power of attorney may not be valid, but the bank relying on it has no way of knowing if the process of divorce has been commenced. Maybe you should let your bank know!
The terms of living wills and medical directives survive the divorce. No legislation or case law has yet tested this issue. You may be well advised to rewrite your living will and medical directives if you don’t want your ex to “pull the plug.”
What about your 401(k) plan? If you are domiciled in Pennsylvania when you die, the state legislature has done your thinking for you. If there is a divorce, any beneficiary designation for a life insurance policy, annuity contract, pension, profit-sharing plan or other contractual arrangement, providing for payment to a spouse, will be construed as if the former spouse had predeceased. Comparable to the wills situation, the divorce must be final for this rule to apply. In many other states it is up to you to change the beneficiary designation.
However, if your insurance is in an irrevocable life insurance trust, which is a common vehicle, the protective statute won’t change the terms of the trust, and benefits may be given to or used for your ex-spouse. And irrevocable trusts being, well, irrevocable, there is no fix. Most life insurance trusts are drafted to take care of this by addressing what happens if the current spouse becomes the ex-spouse.
If you remarry, the federal law enacted as part of the Retirement Equity Act automatically makes the new spouse a beneficiary of qualified plans. Qualified plans include 401 (k) plans, profit-sharing plans and pensions plans, but not IRA’s. If you are married, your spouse is automatically the beneficiary of your qualified plan unless he or she has consented in writing to another beneficiary designation.
Even after the divorce is final, it is important to have your estate planning attorney review your divorce decree or agreement. Your obligations under the agreement may affect your retirement plan. Your ex-spouse may retain rights in a retirement account, or the divorce decree may require maintenance of life insurance payable to the ex-spouse or children.