Many couples facing a Gray Divorce have an existing estate plan. If you are contemplating a divorce, here are some important rules to remember when it comes to estate planning:
Updating Your Estate Plan
If your estate plan documents provide for your assets to pass to your surviving spouse, which most plans do, a pending divorce action doesn’t change that. In other words, if a divorce has not been finalized when a spouse dies, the parties are treated as still being married. Therefore, it is imperative you update your estate plan as soon as practically possible.
Gray Divorce and Estate Planning ATROs
Once your divorce proceeding is initiated, there are limitations on what changes can be made to your estate plan. Pursuant to Family Code Section 2040, Standard (Automatic) Temporary Restraining Orders (“ATROs”) are placed into effect upon filing for divorce.
The ATROs prevent a party from transferring, encumbering, or in any way disposing of assets, without the consent of the other spouse. These financial restraining orders apply regardless of the character of the assets. For example, you would not be allowed to refinance a loan on separate property real estate without the consent of your divorcing spouse.
The ATROs also restrict you from amending your living trust and beneficiary designations. These are considered non-probate transfers and are prohibited once a divorce has been filed. The only exception to the ATROs is the preparation of a new Will, which would be administered through a Probate Court proceeding upon death.
You may consider establishing a new trust for yourself along with a pour-over Will; but you may not transfer assets to the new trust until the divorce is final. If you die during the divorce proceeding, your pour-over Will would be probated to effectuate the transfer of your assets into your new trust.
This is usually the best approach to estate planning during a divorce. Although the probate process is costly, you will ensure your assets will be received by your intended beneficiaries.
Severing a Joint Tenancy in Estate Planning
With written notice to your spouse, you may eliminate your spouse’s rights of survivorship to property. This is often referred to as severing a joint tenancy. For example, if you own real property with your spouse as Joint Tenants, you can record a declaration on the chain of title changing the ownership from Joint Tenants to Tenants in Common. Upon your death, your half of the property would then pass pursuant to the terms of your new Will.
Revoking a Joint Living Trust in Estate Planning
Another exception to the ATROs is the ability to revoke the joint living trust that you had set up with your spouse, on the condition that you provide written notice. However, you should review the language in your trust agreement to confirm that one spouse acting alone has the requisite authority. Some trust instruments will require both spouses to consent to revocation, which will force you to obtain an order from the Family Court allowing the revocation.
Modifying Your Financial POA and Health-Care Directive in Estate Planning
You may also modify your financial durable power of attorney and health directive, without notice or consent. If you become incapacitated during the pendency of the divorce, you will likely want someone other than your divorcing spouse making decisions for you. Updating these documents will also allow your agent to step into your shoes in the divorce proceeding in the event you lack capacity to complete it. This can avoid the necessity of a court-appointed guardian ad litem.
Post-Divorce Considerations and Estate Planning
Once your divorce is final, besides funding your new trust, you do not want to forget to update the beneficiaries on your retirement plans and life insurance policies. These are often forgotten and tend to lead to post-death litigation between your ex and your intended beneficiaries.
Conflict of Interest Issues in Estate Planning
One final issue to keep in mind is that your joint estate planning attorney represents both spouses and cannot take sides in a divorce. The attorney cannot maintain the confidences of one divorcing spouse over the other. It would even be a conflict of interest for your estate planner to recommend a Family Law attorney to you. Without consents, the estate planning attorney may have to withdraw from the representation of both of you.
Reach Out If You Have Questions Regarding Family Law and Estate Planning
If you need Estate Planning or Family Law advice, the teams at Deka Law and Zonder Family Law Group are here to help. Both Deka and ZFLG believe in a holistic approach to divorce and are committed to navigating you through this time.