Estate Planning After Divorce
An estate plan and estate planning documents should be reviewed when certain life events occur. A divorce is one of those life events. Under Pennsylvania law, a divorce proceeding will automatically change most aspects of both spouses' estate plans - even before the divorce becomes final. Once a divorce is contemplated and especially after it has commenced, a thoughtful reassessment of the estate plan by each spouse is critical.
Wills
Provisions of a spouse's will in favor of the other spouse generally become ineffective upon divorce. They also become ineffective before a divorce is final if the person dies during the course of divorce proceedings and grounds for divorce have been established. Depending upon what the will otherwise provides, this could have unintended results. The now-altered gift itself under the will may be otherwise affected. The spouse's gift would now pass to the contingent beneficiary - the person who was to receive the gift if the spouse did not survive had there been no divorce. That person may no longer be the appropriate recipient. The manner in which the contingent beneficiary was to receive that gift - whether outright or in trust - may no longer be appropriate. Beyond the gift for the former spouse, there may be other gifts under the will - for example to the former spouse's family members - that will not be automatically changed but that are no longer desirable. The automatic elimination of the gift to the former spouse may itself be inappropriate. There are occasions – such as collaborative divorces or other non-adversarial divorce proceedings - where former spouses wish to continue to provide for each other despite a divorce. Even in those situations, unless the will expressly provides that a gift is intended to survive a divorce – and wills rarely have those provisions - there will be an automatic change that was not intended, thus disinheriting the former spouse.
Provisions for the children may have been adequate when the spouses were in a good relationship but stronger provisions may be desirable following a divorce. For example, one spouse may fear that the former spouse may exert undue pressure or influence on the children. If the children are minors, there may be fear that the former spouse would actually take the children's inheritance for the former spouse's own use. These types of concerns may suggest that the children's inheritance be left in trust so the trustee can protect against those dangers. The will may need to be revised to provide those protections.
Wills written years ago - before the couple had children or while their now-deceased parents were still alive - present different problems. Those old wills may have no provisions that remain effective to provide for what happens once the provisions for the former spouse are automatically revoked as a result of the divorce. For example, the will may have provided for a gift to the former spouse if living and to parents if the former spouse was deceased. If the gift to the former spouse is ineffective and if the parents are now deceased, there may be no remaining gift at all under the will. This might result in a partial or complete intestacy. This would mean that state law - rather than the person's own choices - would control what happened to her or his property upon death. The results might be directly contrary to the person's intentions.
Provisions in the will other than gifts may need to be re-examined, whether or not those provisions are changed automatically. The former spouse's appointment as executor – a provision “relating to the former spouse” - will no longer be effective. However, the appointment of a relative or friend of the former spouse as executor of the will or as trustee under a trust established by the will would continue to be effective. Similarly the appointment of someone closer to the former spouse as guardian of the couple's minor children will not automatically be changed. These types of provisions may need to be addressed in a new post-divorce will precisely because they are not automatically changed.
Beneficiary Designations
Beneficiary designations in favor of a spouse are also generally changed automatically upon divorce. They also become ineffective before a divorce is final if the person dies during the course of divorce proceedings and grounds for divorce have been established. This could include beneficiary designations in things such as life insurance policies, annuity contracts and pension, profit-sharing or other retirement plans. This could create problems similar to those discussed above regarding wills - inappropriate contingent gifts, inappropriate recipients and absence of controls with regard to former spouse's influence over the children and the children's benefits. There is one additional major danger with regard to retirement plans - a Federal law known as “ERISA.” ERISA affects many retirement plans. ERISA provides that the beneficiaries who are designated in a properly executed beneficiary designation form remain the beneficiaries until a new proper designation form is in place. ERISA preempts state law - that is, state law is made ineffective by ERISA. Therefore, if a particular retirement plan is controlled by ERISA, like most 401(k) plans - there is no automatic change in the beneficiary as a result of divorce and the former spouse - if named as beneficiary on the form - remains as beneficiary despite the divorce. For this reason, if there is an ERISA plan, following the divorce the spouse must change the designated beneficiary in writing, making certain to meet all the necessary requirements of the plan for such a change and have the change accepted and acknowledged by the plan administrator. Otherwise, the former spouse remains the beneficiary of the retirement plan, notwithstanding the divorce, notwithstanding the passing of many years after the divorce and notwithstanding state law to the contrary.
Powers of Attorney, Health Care Powers, Living Wills and Mental Health Care Powers
Other estate planning documents are also affected by divorce. Under Pennsylvania law, if a person designates his or her spouse as agent under a power of attorney, the designation of the spouse as agent is automatically revoked when the divorce action is filed unless the power of attorney itself indicates that it is intended to survive a divorce. Similarly, the designation of the spouse as a health care agent under a health care power or living will and the designation of a spouse as a mental health care agent under a mental health power of attorney is revoked upon the filing of a divorce. While most people probably do not want a former spouse - or a current spouse after a divorce filing – in control of their finances, their health care decisions or their life-ending determinations - that is not necessarily the case. Even in those more common situations where there is no desire to have the former spouse as the agent, if the power of attorney or other document does not provide for an alternate or successor agent, successor health care agent, etc., the divorcing or divorced spouse may no longer have a valid power of attorney because no one is any longer designated as the agent or health care agent.
Summary
The automatic change - in a will, beneficiary designation or power of attorney - is not necessarily a bad thing. In most cases, it is what both spouses would have wanted. However, the failure to take affirmative action after the automatic change has occurred can result in the absence of any effective document at all or a document that no longer reflects the person's intentions. These are often the real dangers. Just as it is important for people with no wills or no powers of attorney to have them prepared, it is also important for people whose documents have been automatically changed as a result of a divorce to promptly take affirmative action to put new proper documents in place, reflecting their current intentions.
Marc H. Jaffe, Esquire
LLM (Master of Laws in Taxation)
© Copyright 2017 Marc H. Jaffe
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Notice
This article is for informational purposes only. It is based upon Pennsylvania law. It should not be considered legal advice.
