Legal column: Divorce and dynamic documents
By Teresa J. Rhyne
– Often when someone signs their estate planning documents they breathe a heavy sigh of relief. And they should—it’s a big accomplishment. But it’s not over.
Estate planning documents are not static documents—it’s not a “one and done” transaction. Wills, trusts, powers of attorney, and health care directives are dynamic—they should change as often as your life does. One of the most important times one should review and revise (or implement) estate planning documents is in the event of a divorce.
Let’s take a look at what should be revised and when in the context of a divorce.
Health care directives
The California healthcare directive designates the person who can make healthcare decisions for you if you are not able. If you don’t want your soon-to-be ex-spouse deciding what pain relief you receive, whether or not to “pull the plug,” or if your organs should be donated, you’ll want to update this document immediately. You do not need to have a final divorce decree to change or sign a new healthcare directive.
Keep in mind that the person named as your agent on your health care directive is also the party authorized to make your immediate post-death arrangements—authorizing an autopsy, determining what mortuary your body is sent to, cremation vs. burial, and where you’ll be laid to rest. All the more reason to update this important document.
Power of attorney
A power of attorney grants another party the right to act in your stead in certain matters when you are unable to due to mental or physical incapacity. A person holding your power of attorney can sign documents, buy or sell assets, enter into contracts, and manage certain assets on your behalf. If you are headed for a divorce, in a divorce proceeding, or have divorced, it’s likely you do not want your spouse (or former spouse) to have that authority. This is particularly true since the person with power of attorney may be the person to act on your behalf in legal proceedings—like a marital dissolution. Imagine your estranged spouse having the right to hire or fire an attorney for you or enter into a property settlement agreement allegedly on your behalf. See the problem? Get that document updated!
While a court, in such a situation, may require a conservatorship over your person rather than relying on a power of attorney, you can make that process much easier by updating your document to name to the person you do want to have these powers.
Wills and trusts
Following a divorce, a will and trust are both nullified as to an ex-spouse. But that is not the case until the final decree is entered, which takes a minimum of six months and generally is much longer. If you were to pass away in the midst of a divorce, the divorce proceedings cease, and your spouse is legally your surviving next of kin. They have all the rights of a surviving spouse, including the right to ownership of all of your community property and some or all of your separate property, unless you have specifically stated otherwise in an updated will or trust.
When a petition for marital dissolution is filed in California, there is an automatic temporary restraining order imposed on both parties, preventing them from transferring assets in any manner. Thus, while you may need to wait until a final decree before you transfer your assets into a trust, you can and should update your will and living trust to provide for those you wish to provide for and then “fund” the trust (transfer title to your assets into the name of the trust) after the property settlement agreement is finalized.
If you have minor children and you do not provide for a trust for your children, whether through your will or, preferably, your updated living trust, the child’s other parent (your ex) will likely be the party in control of your child’s inheritance until the child turns 18. That may be another good reason for updating your documents even before the divorce is finalized.
Financial account beneficiary designations
A final divorce decree will negate any “payable on death” designation on accounts with financial institutions. However, if following your death your former spouse claims the account without disclosing the divorce, the financial institution does not have any liability (after all, you’re the one who forgot to update your designation). Your heirs will need to pursue your ex-spouse for the funds, assuming the funds haven’t been spent. And if your heirs are your children, they may not feel comfortable pursuing their surviving parent in court.
Life insurance beneficiary designations are not null and void following a divorce—so be absolutely certain to update those, unless your property settlement requires you to keep your former spouse named as the beneficiary.
Retirement plan beneficiary designations should also be updated. Note, however, that some pensions and other retirement plans require spousal consent if you are naming someone other than a spouse as a beneficiary. Thus, you may not be able to change the beneficiary until the divorce is final and you have no spouse—and then only in conformity with the property settlement.
An important note on retirement plans in a divorce: a California court-ordered property settlement agreement dividing a retirement plan is not likely sufficient to actually transfer a portion of one spouse’s retirement plan to the other spouse. A Qualified Domestic Relations Order (QDRO) will be required. Retirement plans are controlled by federal law, which prevails over state law. Accordingly, the QDRO, a creature of federal law and often a separate order, is required and must be served on the retirement plan in order for the plan assets to be effectively transferred. Many family law attorneys do not draft QDROs, and you may find you need to seek a QDRO specialist to handle this particular asset.
Note: This is not legal advice to you individually, and you should rely on your own family law and estate planning attorneys to advise you.
Teresa J. Rhyne is an attorney practicing in estate planning and trust administration in Riverside and Paso Robles, CA. She is also the #1 New York Times bestselling author of “The Dog Lived (and So Will I)” and “Poppy in The Wild.” You can reach her at Teresa@trlawgroup.net.