Until Death (or Divorce) Do Us Apart: Estate Planning Issues in Divorce

Every person going through a divorce should think (if only for a minute) about their estate plan or other testamentary documents, titles to property, and various beneficiary designation.  

If you have an existing living trust at the outset of a divorce, it should be revoked. New testamentary documents should be prepared (will or another trust). Of course, the new trust cannot be funded until final disposition of the assets is made. Funding the trust any sooner, without a specific agreement, may expose you to liability for violating the Automatic Temporary Restraining Orders (ATROs) that are imposed with a Petition for Dissolution of Marriage is served. You would have to give notice to the other spouse of your intention to revoke the trust. You cannot revoke an irrevocable trust. The assets in the irrevocable trust do not comprise martial estate. They belong to a third party beneficiary and are not subject to family law court's jurisdiction. 

You may also want to change beneficiaries to IRAs and terminate joint tenancies. Believe it or not death of a spouse can happen during the course of a divorce even in "young" unsuspecting couples. Sometimes, all the assets end up being inherited by the ex-spouse you hated during the divorce. If you hold property in joint tenancy with your spouse, you should sever the joint tenancy unless of course the other spouse is terminally ill or elderly. Joint bank and investment accounts may be difficult to change since banks may not permit one spouse to sever joint tenancy account without the other spouse. You may withdraw half of the funds and preserve them in a separate account. Notice would have to be given to the other spouse. With agreement, you could change accounts altogether.

Many people have retirement accounts such as defined benefit plans, 401(k) accounts, deferred compensation accounts, individual retirement accounts (“IRA’s”), Roth IRA’s and others. Many of these accounts have beneficiary designations in place, usually to the (estranged) spouse. With qualified plans, including 401(k), 457 and 403(b) accounts, ERISA requires that the surviving spouse be the beneficiary on death, so the beneficiary cannot be changed while the divorce is pending unless on a motion made in court. Because IRA’s and other non-qualified benefits such as deferred compensation plans are not governed by ERISA, you could revoke but not change the beneficiary. In any case, you must give notice to he other spouse before you change the beneficiary. 

Some documents may not be changed. The ATROs do not permit changing life insurance beneficiaries during your divorce. You should, however, change them immediately after judgment has been entered. 

So happens if your spouse actually passes during the pendency of your divorce? If the judgment has not been entered, you are not considered divorced and the case goes to probate court. 

Agata Zwierzchowski is a family law attorney with Zwierzchowski & Nguyen, A PC. Call her for any estate planning issues in your divorce at 562.426.6522.