In California, What Happens to Your Estate Plan After You Divorce

Estate Plan After Divorce

You and your spouse have recently divorced, and the judge has signed the divorce decree. Now what? Although you may feel that you have spent enough time and money on lawyers, there is one last attorney you need to talk to: an estate planning attorney. If you and your former spouse created an estate plan or named each other as beneficiary on any of your accounts or property (assets) while you were married, here is what happens in California:

If you and your spouse had a Joint Revocable Living Trust, the trust terms govern whether the trust is revoked upon divorce. It will only be revoked if the trust instrument says it is revoked upon divorce. Otherwise, in California, it remains in effect. You and your ex-spouse can agree to revoke it or amend it, or, if the trust allows unilateral revocation, you can revoke it without your ex-spouses consent. The main issue is your trust terms govern how and when it is revoked. Seek counsel from your attorney on this issue.

Remember, ethically, when an attorney provides a joint trust to a couple, he or she represents both you and your spouse. The attorney should consult with both you and your ex-spouse regarding who the attorney represents moving forward after your divorce and ethical obligations must be met.

The Divorce Decree

Your divorce decree or California state law may automatically revoke parts of your estate plan—particularly provisions naming your former spouse for decision-making roles such as executor, trustee, and agent under powers of attorney. Upon divorce, any provision in the trust, or on a bank account, in favor of the former spouse are automatically revoked by operation of law, unless the trust explicitly states otherwise. If you had a joint bank account with your ex-spouse, you need to update your account so, if you die, someone will be able to easily access the account.

A good estate planning attorney who knows what they are doing will advise you to create a new individual trust after you divorce. He will help you transfer titles to all your bank accounts into the trust. The reason for this is ease of access. If you die, your trustee of your trust will always have access to the accounts and court orders or expensive non-probate solutions are not necessary. A new trust estate plan will also solve the problem of replacing your ex-spouses name as trustee of your trust and as an agent on your powers of attorney for finances and health care. Even though California law revokes their right to serve on your behalf, you need to just remove his/her name completely from your documents with an update.

When you divorce, an update to your estate plan with an attorney ensures that your hard-earned money and property is distributed in a way that aligns with your new goals and life circumstances. If you have not done any planning since your divorce, now is the perfect time to get your affairs in order.

When you meet with the estate planning attorney, it is crucial that you bring all necessary documents, including a copy of your divorce decree. This document will help determine what obligations need to be included in your estate plan, what assets you now own, and how those assets are titled.

What Is in a Divorce Decree?

Support Obligations

Your divorce decree may state that your spousal or child support obligations require you to purchase life insurance to address the possibility that you pass away before fulfilling the entire obligation. If you have a child support obligation, it may be wise to designate your living trust as the beneficiary of the life insurance policy, if the terms of the divorce decree so permit. This approach would allow distributions to the minor children to be made by a trustee instead of as a lump-sum payout to your former spouse, who may not use the funds as intended.

Property Division

The divorce decree will also contain a section on the division of your marital property. It is helpful to provide this information to the estate planning attorney to present an accurate picture of your current property and financial accounts.

In addition to identifying the assets you now own, how you own them is incredibly important. Ownership of assets previously owned by you and your former spouse as joint tenants or tenants by the entirety may have changed to ownership as tenants in common under state law. This change is important to understand because, if you had passed away before your divorce, your now-former spouse would have automatically received your interest in the asset. However, if the ownership has changed to tenants in common, your interest will likely go to someone else when you pass away. If you do no planning, your interest in the asset will be transferred according to state law, which may not coincide with your wishes. It may go to your children, parents, or siblings, depending on who survives you. As part of your estate plan, you can choose who will receive your interest and how they will receive it.

Divorce and Life Insurance

In California, non-probate transfers, including life insurance, are automatically revoked upon divorce unless:

1.    The divorce judgement specifically states otherwise;

2.    The life insurance policy is governed by federal law; or

3.    The former spouse is renamed as beneficiary after the divorce.

In states other than California, because a life insurance policy is a contract with a third party, a divorce may have no effect on the beneficiary designations. If you named your former spouse as a beneficiary of the policy prior to your divorce, most states will not automatically revoke that designation after a divorce. Even if the designation is revoked under state law, it is important that you change the beneficiary designation so the company is on notice of your wishes and to avoid any confusion. In some cases, although the former spouse is no longer entitled to the life insurance proceeds, if the insurance company is not informed of the divorce or given an updated beneficiary designation, the benefit will be paid out to the named beneficiary (former spouse), and it will be the rightful beneficiary’s responsibility to sue and collect the proceeds from the former spouse. No matter what the applicable state law says, it is important to review and update your beneficiary designations after a divorce to avoid unnecessary drama and confusion.

Divorce and Retirement Accounts

For retirement accounts governed by the Employee Retirement Income Security Act of 1974 (ERISA), such as 401(k)s, beneficiary designations are not automatically revoked upon divorce. Even if state law would otherwise remove a former spouse, ERISA preempts state law. To ensure that your former spouse does not receive the benefits, you must affirmatively change the beneficiary designation unless your divorce decree requires you to keep them as the beneficiary.

You Need an Estate Plan Now More Than Ever

As a newly single person, you are now in full control of your money and property. If you do not have an estate plan in place, state law will determine what happens to your hard-earned money and property. If you already have estate planning documents in place, you need to review them now that your circumstances have changed. Even if gifts to your former spouse are revoked under state law, you need to ensure that the alternate plan built into your documents is still what you want. Call Russell C. Miller, Esq., owner of The Miller Elder Law Firm today at (559) 625-4205 so he can schedule an appointment to protect your new future and those you love, and do not forget to bring the divorce decree.