Divorce & Estate Planning: Before, During, and After the End of a Marriage
No-fault divorce has been in place in California since then Governor Ronald Reagan signed it into law in 1970. Divorce rates in the U.S. and in California have increased steadily with the most recent reliable statistics indicating that at least 50% of marriages end in divorce (note, there are statistics indicating that in Southern California, the divorce rate is as high as 74%). Consequently, it is more likely than not that you or someone you know has experienced divorce first-hand. Closely intertwined with the decision to divorce a spouse is what must be done with your estate plan before, during, and after any divorce proceedings. After all, if you or a loved one has made the difficult decision to end their marriage, they likely do not want their assets to end up in their soon-to-be ex-spouse’s hands if something were to happen to them during or after the divorce.
Automatic Temporary Restraining Orders (ATROs)
When a married individual files for dissolution, certain Automatic Temporary Restraining Orders go into effect to protect the rights of the divorcing spouses and maintain the financial status quo of the married parties. These ATROs put restrictions on what a spouse may do with his or her assets and estate plan during the divorce proceeding. These restrictions apply to any property, whether real, personal, community, quasi-community, or separate and remain in place until a final judgment of dissolution is entered.
Actions to Consider Taking Before Filing a Divorce Petition
Below is a list of estate planning actions to consider before filing a petition for divorce. All of these actions can be done of your own volition, with neither notice to nor consent of your spouse required:
- Create, modify, or revoke an existing will;
- Revoke an existing revocable (marital) trust;
- Create and fund a new revocable trust;
- Sever joint tenancies;
- Change beneficiary designations of non-probate transfers; and
- Revoke existing powers of attorney and execute new powers of attorney.
Keep in mind that these actions are subject to fiduciary duties owed to a spouse and governed by any provisions of the documents being revoked or modified. Keep these actions in mind when meeting with a family law attorney or estate planner before the divorce petition is filed.
Actions to Consider Taking After the Divorce Petition is Filed (During Divorce)
Once a petition for divorce is filed, the above mentioned ATROs go into effect. Accordingly, while certain estate planning actions can still be completed, some actions require notice to the other spouse and some require a court order.
The following actions can be done unilaterally (no notice or consent of other spouse needed, no court order needed) even after filing for divorce:
- Creating, modifying, or revoking a will;
- Creating an unfunded revocable or irrevocable trust;
- Revoking and creating new powers of attorney for finances and healthcare.
A quick note on creating an unfunded revocable or irrevocable trust: after the divorce petition is filed, a spouse can create a new revocable or irrevocable trust, however, that trust CANNOT be funded until the conclusion of the divorce proceeding UNLESS the other spouse’s consent is obtained or by court order, neither of which are likely to occur given the divorce.
The following actions can be done ONLY if notice is served on the other spouse BEFORE the change is made:
- Unilateral revocation of a non-probate transfer, including an IRA beneficiary change and revocation of a revocable trust;
- Unilateral severance of a joint tenancy.
Note that the revocation of a non-probate transfer does NOT mean a divorcing spouse can modify the beneficiary designation simply by providing notice to the other spouse. In other words, revoking a beneficiary designation is NOT equivalent to modifying the beneficiary designation. See below for more information.
The following actions can be done ONLY with the written consent of the other spouse OR upon order of the Court:
- Transferring, encumbering, concealing, or in any way disposing of ANY property; and
- Creating or modifying a non-probate transfer in a way that affects the disposition of the asset subject to the transfer.
For non-probate transfers, the opposing spouse must consent to beneficiary modifications that would in effect disinherit the opposing spouse. Also, special considerations exist for qualified retirement accounts governed by ERISA. Please discuss these matters with an experienced family law or estate planning attorney to determine the specifics.
After Conclusion of the Divorce Proceeding
Once a final divorce decree is entered by the Court, any existing marital trust the parties had created while married is terminated as a matter of law. Thus, it is imperative that the client, after determining the division of marital assets, meet with an estate planning attorney to discuss properly titling assets and establishing a new estate plan including a new revocable trust. By doing so, the newly divorced person can ensure that assets do not transfer to his or her now ex-spouse at death, including life insurance death benefits, retirement accounts, and any other assets now owned as a single person. Also important is the creation of new powers of attorney for finances and health care. Once a person is divorced, I can imagine that 0% of them would want his or her now ex-spouse to make health care decisions on his or her behalf!
In sum, the crossover issues of estate planning and family law can have dire consequences for those who neglect them. If you or someone you know is contemplating divorce, is currently involved in a divorce, or is recently divorced, our office offers free initial client consultations for those of you with specific questions about your circumstances.