Estate Planning before, during, and after a divorce

Estate planning problems often arise in the context of a divorce. Some spouses seeking a divorce are under the mistaken assumption that the mere act of filing a complaint for divorce revokes all prior estate planning documents and beneficiary designations in favor of their soon to be former spouse. Many others do not even think of estate planning issues. Good estate planning for a divorce occurs before, during and after a judgment of divorce is entered by the court. Problems to anticipate during the pendency of a divorce include one spouse acting as an agent for the other in financial and health care matters, which, in all likelihood, is no longer desirable by the time divorce proceedings are commenced. The death of one spouse could also cause unintended consequences if an estate planned is not revised. The otherwise soon to be former spouse could become the surviving spouse and potentially a fiduciary for the decedent and receive property distributions that are no longer desirable.

In some cases, particularly in blended families, spouses may already have a prenuptial or postnuptial agreement in contemplation of divorce. These agreements can address matters such as the homestead allowance, a surviving spouse's election against a will, a surviving wife's dower rights, exempt property, the family allowance, and generally, the division of marital property and maintenance of separate property. Rights to benefits from retirement plans subject to the Employee Retirement Income Security Act can also be addressed in prenuptial and postnuptial agreements. Estate plan documents should be revised accordingly and the participating spouse of a retirement plan should be particularly careful to follow up and change plan beneficiaries in accordance with the law after the marriage. Often times, however, spouses do not have a prenuptial or postnuptial agreement. When they do not, an amicable resolution by agreeing to terms of a consent judgment even before a complaint for divorce is filed would be ideal. However, this is not often the case, making early estate planning very important.

If possible, a spouse should review and revise his or her estate plan and beneficiary designations before a complaint for divorce is filed. Generally, a husband and wife used the same attorney to prepare their estate plan. Due to a conflict of interest, it will be difficult for this attorney to continue to represent husband or wife when a divorce is imminent. Therefore, each spouse might need to seek a new attorney and should do so quickly once a divorce is contemplated. Once a complaint for divorce is filed, one spouse may seek an ex parte order from the court prohibiting the other spouse from revising his or her estate plan documents and beneficiary designations.

Before and, as permitted by the court, during the pendency of a divorce proceeding, durable powers of attorneys for financial matters, durable powers of attorney for health care, and patient advocate designations should be revised. They often designate one's spouse as agent and patient advocate. Divorce proceedings typically make such nominations and designations undesirable. The mere filing of a complaint does not revoke durable powers of attorney and only suspends a patient advocate designation. It is the entry of a divorce decree that revokes these nominations and designation. Therefore, it is crucial to revise these documents and take affirmative acts such as notifying the other spouse and, as needed, others of the revocation and destroying all copies of prior documents.

Wills and trusts can be used as estate planning tools during the pendency of a divorce action. If one spouse does not have a will, a will could be used to reduce the other spouse's intestate share and preserve property, for example, for the children of the marriage. A revocable trust may also be used to reduce a spouse's elective share and preserve property for others. Existing wills and trusts should be reviewed. They often nominate one's spouse in a fiduciary or representative capacity, including personal representative, trustee, conservator and guardian. These nominations are generally revoked upon entry of the divorce judgment, not the filing of the complaint. Therefore, it is important to change these nominations. The same is true of a disposition of property to a spouse. A disposition of property is generally revoked only upon entry of the divorce judgment. Such dispositions should be reviewed.

Once a divorce judgment is entered, all estate plan documents and beneficiary designations should be reviewed and updated to reflect the divorce. These are just some of the estate planning issues that may arise before, during and after a divorce. When divorce is imminent, a spouse should seek estate planning advice to accomplish his or her objectives.

Published: Thu, Apr 26, 2012