Estate Planning in Divorce Situations
Estate Planning in Divorce Situations
By Mark T. Coulter, Esquire
Estate Planning Attorney
Divorce can be one of the most emotionally devastating events in a person’s life, but in the turmoil it can be far too easy to fail to properly consider the financial implications of an impending divorce, as well as its effect on your estate planning needs. In almost all divorce situations, new estate plans are required to accommodate the new financial and practical situation in which both parties now find themselves. If you fail to modify your estate plan during the period of your life when you must confront a divorce, you run the risk that your financial and personal affairs will suddenly be handled in a way far different than you intend. Examples include:
- Bequests in a Will to your ex-spouse
- Naming your ex-spouse as your Executor
- Power of Attorney naming your ex-spouse as your Agent
- Joint Account with your ex-spouse still on it
- Life insurance naming ex-spouse as beneficiary
- Health Care Proxy naming ex-spouse
- Payable-on-death account naming ex-spouse
What will the law do if you don’t modify your plan, and what steps should you take?
Pennsylvania has several statutes which address this question, but the answers are not always as clear as we would like. Relevant Pennsylvania statutes from Title 20 include:
§ 2507. Modification by circumstances
Wills shall be modified upon the occurrence of any of the following circumstances, among others: ..(2) Divorce.–If the testator is divorced from the bonds of matrimony after making a will, any provision in the will in favor of or relating to his spouse so divorced shall thereby become ineffective for all purposes unless it appears from the will that the provision was intended to survive the divorce.
§ 6111.2. Effect of divorce on designation of beneficiaries
If a person domiciled in this Commonwealth at the time of his death is divorced from the bonds of matrimony after designating his spouse as beneficiary of a life insurance policy, annuity contract, pension or profit-sharing plan or other contractual arrangement providing for payments to his spouse, any designation in favor of his former spouse which was revocable by him after the divorce shall become ineffective for all purposes and shall be construed as if such former spouse had predeceased him unless it appears from the wording of the designation, a court order or a written contract between the person and such former spouse that the designation was intended to survive the divorce. Unless restrained by court order, no insurance company, pension or profit-sharing plan trustee or other obligor shall be liable for making payments to a former spouse which would have been proper in the absence of this section. Any former spouse to whom payment is made shall be answerable to anyone prejudiced by the payment.
§ 6111.1. Modification by divorce
If the conveyor is divorced from the bonds of matrimony after making a conveyance, any provision in the conveyance which was revocable by him at the time of his death and which was to take effect at or after his death in favor of or relating to his spouse so divorced shall thereby become ineffective for all purposes unless it appears in the governing instrument that the provision was intended to survive the divorce.
These statutes, taken together, give substantial protection to the divorced parties. Together, these statutes should operate to render void any of the examples listed above. That still doesn’t answer the question, however, of where that does, or should, leave your estate plan. We will turn to that in a moment, but first we must point out that even in the face of clear statutory language like that listed above, a divorce may not automatically remove all the former benefits your spouse would enjoy under a former estate plan. In the fall of 2008, a case called re Estate of Sauers was decided by a Pennsylvania appellate court, and held that if the contract right at issue was part of an ERISA plan (Employee Retirement Income Security Act) such as many people get from their employer, then the state statute would be invalid if it was in conflict with the benefits plan documents from the employer. In the Sauers case, the ex-wife was permitted to retain life insurance benefits which had listed her as a beneficiary during her prior marriage because the employer’s plan document didn’t provide for beneficiaries to change upon divorce. The lesson to take from this case is that you shouldn’t rely upon the law to invalidate estate planning provisions which you no longer intend. Instead, you should take action to make sure that your current plan conforms to your intent and goals.
During the period of time in a marriage where divorce is contemplated, pending or finalized, you should carefully consider the current status of at least the following elements of your estate plan, and arrange for modification where appropriate:
Is your ex-spouse:
- A beneficiary in your Will?
- An executor in your Will?
- A Trust beneficiary?
- A Trustee?
- A joint account owner?
- A Pay-on-Death beneficiary?
- A Transfer on Death beneficiary?
- Listed as a Joint Tenant on any titles to property?
- A beneficiary of any life insurance?
- Your Agent under any Power of Attorney?
- Your Health Care Proxy Agent/Surrogate?
- A party to a Prenuptial Agreement which controls anything?
As you consider these aspects, it is also a good idea to gather together the documents regarding the financial transactions occurring during the marriage, so an estate planning attorney can consider the status and future of each. Examples include tax returns, bank records, investment account statements, real estate titles, trust documents, powers of attorney, etc.
You need to do more than remove your ex-spouse from your estate plan, however. You must make the necessary changes to your plan to implement appropriate documents to embody your current goals and intentions now that you are starting a new life. Such changes may be relatively modest in nature and expense, but it is important to take the time to assure that your plan documents accurately reflect what you want them to do. Finally, when it has been determined that steps need to be taken to modify the current status of your plan regarding an ex-spouse, it is important that you take the next step and actually make the changes. It does no good to know the problem if you don’t implement the solution.
Please contact us if you have questions regarding your estate plan and how it is affected by a divorce.
About Our Law Office
At the Estate Planning Centers at Coulter & May, P.C., we devote our practice to estate planning and assisting families through such transition times with estate and trust administration counseling. We offer guidance and advice to our clients in every area of estate planning, and offer comprehensive and personalized estate planning consultations. For more information or to attend an upcoming seminar or to book a consultation directly, please contact us at (412) 253-7526 or visit us online at www.estateplanningcenters.com.
Disclaimer: The information presented in this article is a conversational summary of a complex area of law and should not be construed to constitute legal advice. No person should rely upon the content of this article for making any decisions, and should instead consult with appropriate legal and tax professionals.