Estate Planning and Divorce

A new divorce action is filed in the United States every 13 seconds[1].   Impending dissolution of a marriage brings up many issues, yet a majority of those divorcing do not consider their estate plan to be one of them.  Even many family law attorneys do not advise their clients about updating their estate planning documents, to the detriment of the client.  Necessary changes to your estate planning instruments should, however, be carefully considered if you are facing a dissolution of your marriage or Registered Domestic Partnership (RDP).

Individuals considering or facing an impending dissolution should consider taking steps to amend their estate planning documents before the petition for dissolution is filed by either party.  Pre-action planning is important as a divorce will take a minimum of six months to complete in California; and many take a year or more to complete.  Much can happen while a divorce is pending; and it is important to update your estate planning documents to prepare for the possibilities.  These changes are much easier to make prior to the beginning of a dissolution action.

Just the initiation of divorce procedures has significant impact on the estate planning of both spouses.   The filing of a dissolution action triggers Automatic Temporary Restraining Orders (ATROs) to be imposed on both parties.  The filing party is bound by the ATROs immediately upon the dissolution action being filed. The responsive party is bound by the ATROs once they have been properly served.  The ATROs are orders of the court and remain in effect until the judgment of dissolution is entered by the court or the matter is dismissed in its entirety.  The ATROs restrict the changes that each spouse can make to their respective estate planning instrument(s) while the dissolution action is pending.

The ATROs allow either party to (1) create a new Will and/or modify or revoke an existing Will and (2) create, but not fund a new revocable or irrevocable Trust without notice to or consent from the other party.  The ATROs do not limit the ability of either party to revoke, amend, or execute Power of Attorney documents for financial or health care matters.

The ATROs require notice be given to the other party of the following actions prior to their taking effect: (1) revocation of an existing revocable Trust[2]; (2) revocation of a beneficiary designation of a nonprobate transfer; and (3) revocation of a right of survivorship for property.  “Nonprobate transfers” include individual retirement accounts (IRAs), other retirement vehicles such as pensions, 401(k), 403(b), 457 accounts, life insurance policies, transfer on death and pay on death designations (TODs and PODs); and any other asset which will be passed directly to a beneficiary upon the owner’s death.  A “right of survivorship for property” includes holding title as joint tenancy, community property with right of survivorship, and a transfer on death deed for real property.  So, once the dissolution papers have been filed and served, a party can only remove the other as a beneficiary of a nonprobate transfer or sever a joint tenancy or other right of survivorship in property by first serving and filing notice to the other party in the dissolution matter[3].

The ATROs require consent of the spouse or a court order for one party to create a new nonprobate transfer or modify an existing nonprobate transfer in a manner that affects the disposition of property.  This means that consent or court approval is required to enter into a new life insurance policy, IRA, etc. or modify an existing one to alter the disposition of the property (i.e. change the beneficiary to someone other than your spouse).

Because the terms imposed on the parties by the ATROs are very restrictive, it is a much better option to take these actions before the ATROs are effective, if possible.  If you are unable to evaluate your estate planning instruments prior to the filing of the action, an estate planning attorney should be consulted as soon as possible to determine what actions may be taken to preserve your new testamentary wishes.

Now that you have identified which changes you are authorized to make, you must identify what changes you need to make.  Perhaps most important, is that the spouses most likely designated each other as attorney-in-fact for financial and healthcare decisions during incapacity.  These documents remain intact despite the initiation of a dissolution proceeding and will remain so until the court enters judgment dissolving the marriage.  Given the emotional conflict that many spouses encounter during a split, both spouses should revise their Durable Powers of Attorney for Financial and Healthcare Decisions to appoint an agent whom they know well and trust to make decisions on their behalf.

Similarly, the parties likely designated each other as the sole or primary beneficiary of their estate planning instrument(s) and/or nonprobate transfers.  Generally, if a party dies while the dissolution action is pending (i.e. before the court has entered a judgment dissolving the marriage), their spouse will still be considered the “surviving spouse” at their death and the existing estate planning designations will still be applicable, despite the separation and pending dissolution action.  This includes joint tenancy or community property ownership of real property and financial accounts, and beneficiary designations for nonprobate transfers (retirement accounts, annuities, life insurance, etc.).

Once the dissolution is finalized by a judgment entered by the court, certain California statutes provide automatic revocation of certain nominations and dispositions.  For instance, Probate Code section 6122 provides that a judgment of dissolution automatically revokes: 1) any disposition of property made by a will to the former spouse; 2) any provision granting the former spouse a power of appointment in a will; and 3) any nomination of the prior spouse as executor, trustee, conservator or guardian.

Similarly, Probate Code section 5040 provides that any nonprobate transfer (i.e. individual retirement accounts (IRAs), other retirement vehicles such as pensions, 401(k), 403(b), and 457 accounts, transfer on death and pay on death designations (TODs and PODs, etc.) executed before or during the marriage is automatically revoked upon the entry of a judgment of dissolution (subject to certain, specific exceptions which exceed the scope of this article).  Notably, life insurance policy beneficiary designations are not included and are not automatically terminated.  Also, a judgment of legal separation, which technically does not dissolve the marriage, does not trigger the effects of these statutes.

Although beneficiary designations may be automatically terminated by statute, this effect may be challenged by the prior spouse in a legal action so it is still important to complete paperwork to formally designate a new beneficiary.  Similarly, estate planning instruments such as Trusts and Wills should be updated to formally nominate successor trustees, executors, and other important designations.  This will avoid the possibility of a challenge or required legal action to appoint a person to an office.

For individuals without an existing estate plan, consulting an estate planning attorney before or during a dissolution action is imperative.  If a party dies without designating estate planning choices before the judgment of dissolution is entered, the other party, as the surviving spouse, will inherit the deceased party’s one-half of the community property and any quasi community property, as well as at least one-third of the deceased party’s separate property, depending on whether there are children or issue of deceased children.  Execution of a will, which may be done unilaterally while the ATROs are in effect, can effectively direct each party’s estate disposition so as to avoid the possibility of the ex-spouse inheriting if the party dies before the marriage is formally dissolved.  While this possibility seems remote, it is important to consider it given the considerable length of most dissolution actions in California.

While the emotional effects of facing a divorce may delay consideration of a party’s estate planning documents, it is important to consult with an experienced estate planning attorney in conjunction with your family law attorney to effectively protect yourself and the disposition of your property.

This article was written by Associate Attorney, Anastasia B. Salmon.  To reach Anastasia directly, please e-mail her at [email protected].

[1] https://www.divorcelawyersformen.com/blog/divorce-rate-us-2018/

[2] Revocation must satisfy the procedural requirements for revocation as outlined in the Trust document.

[3] Whether a retirement plan beneficiary designation may be revoked without spousal consent also depends on whether the account is a qualified retirement plan governed by the Employee Retirement Income Security Act of 1974 (ERISA).  Most individual retirement accounts are not governed by ERISA.

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