A Complete Guide to Navigating Divorce and Estate Planning

If you’re getting divorced, you most likely have all types of questions. Of course, there are the usual concerns about child custody, support payments, and equitable distribution. Meanwhile, you should speak with your lawyer about your estate plan. What happens before the divorce is finalized? After the decree is signed, is your will immediately void?

No doubt you already know that divorce is stressful. In fact, one expert study considers it second only to one other life event. Ironically, the Holmes-Rahe Stress Scale lists the death of a spouse as number one. All things considered, love and marriage create their own set of emotions. Death and divorce produce others.

In the meantime, you may need some clarification concerning how divorce and estate planning interact with each other and complicate matters.

Questions You Need to Answer About Your Post-Divorce Estate Plan

Quite simply, an estate plan involves more than setting up a trust or executing a Last Will and Testament. What if you become incapacitated and unable to take care of financial or medical decisions? Do you really want the spouse you are divorcing to be in charge? That’s a very real possibility if you have no estate plan, or if you have one that names your estranged husband or wife.

The problems you might encounter with your estate plan after a divorce can include:

  • Not changing your other estate documents, including trust or power of attorney documents.
  • Not changing your beneficiary designation for a life insurance policy or retirement account away from your ex-spouse.
  • Not changing a deed for property awarded to you in the divorce to take the spouse’s name off the title.

In this comprehensive article, we’ll delve into the difference between marital property in a divorce and joint property in an estate, how a divorce can affect your estate plan, and how to solve the problems that can arise when divorce and estate planning issues intersect.

Is a will that names your ex-spouse as a beneficiary valid?

Tennessee law addresses the validity of wills naming former spouses as beneficiaries in TN Code § 32-1-202. Under Tennessee law, when you are divorced, the ex-spouse is no longer a beneficiary of your will. The statute states that “a person who is divorced from the decedent or whose marriage to the decedent has been annulled is not a surviving spouse.”

However, for this law to apply, the divorce must be final. A separation by you and your future ex-spouse, or even a decree of separation, does not cause the ex-spouse to be taken out of the will. Any active non-final divorce still contains the spouse in the will.

In some circumstances where divorce and estate planning intersect, former spouses may still want to name one another as beneficiaries. This would require an update to any will made before the couple’s divorce.

How are assets in an estate divided after a divorce?

At the end of the divorce, part of the Marital Dissolution Agreement (“MDA”) sets out how your and your ex-spouse’s assets are to be divided between them. Because of the divorce, one of the four ways that assets pass—joint ownership with right of survivorship—is no longer an issue, as the assets are split. You own some assets; the ex-spouse owns others. There are no longer any jointly owned assets.

How does divorce affect your beneficiary designated assets?

The law described above only affects the provisions of a will. It does not apply to assets that pass by a beneficiary designation. Life insurance is usually the most significant issue here. If you do not change the beneficiary of the life insurance policy away from your ex-spouse, the ex-spouse will probably receive the money. This often causes costly litigation in court between the ex-spouse and the beneficiaries who otherwise would have received the life insurance money.

Retirement accounts, both IRA and 401K, are sometimes treated differently. There is some case law that suggests that a divorce does eliminate the spouse as a beneficiary. This argument is based on the interpretation of certain federal statutes that control retirement accounts. These statutes do not apply to life insurance.

What happens to real property in a divorce?

It is not uncommon to have real property titling issues when someone dies after a divorce. Even though the MDA may award you a certain piece of real estate, a new deed still needs to be executed and filed to formally take your ex-spouse’s name off the property’s title. If no new deed is filed, your family will have some hoops to jump through to transfer the real property after your passing. They will have to go to court to have MDA enforced and a new deed filed in your name.

There is no concern about the ex-spouse getting property as with life insurance. This is an issue of the divorce process not being fully completed so that your assets pass as desired.

Another note of caution: even though the law removes your ex-spouse from the will, it does not automatically remove your ex-spouse as a power of attorney for financial and health care decisions, nor does it remove the spouse from a trust.

Solving Common Issues with Divorce and Estate Planning

Now that we’ve discussed a few of the problematic questions divorce brings up about estate planning, we will cover several ways that these problems can be solved.

  1. When your and your spouse’s estate documents are initially prepared, your attorney can include a provision that the spouse is only part of the plan in the documents during the time the two of you are married. It is possible to even take this further by not waiting for your divorce to be final—the documents can state that they are no longer a part of the plan if a divorce proceeding is ongoing, even if not yet final.
  2. Revise what can be edited during the divorce process. Once a petition for divorce is filed, you and your spouse are prohibited from changing beneficiary designations or transferring title in accounts and property. However, you can still change your will (and maybe a revocable trust) and power of attorney documents to appoint a new Power Person.
  3. During the finalization of the divorce process, it is common to see language in the Marital Dissolution Agreement (“MDA”) that says you and your ex-spouse release any rights you may have to each other’s property that each is receiving in the divorce. The problem with this is that often, the status of being a beneficiary on a life insurance policy or a Power Holder in a Power of Attorney is not considered a right. Some attorneys address this issue by including language in the MDA that you and your spouse also relinquish any appointment or designation as a beneficiary of a life insurance policy, retirement account, and trust, and decline to serve in any Power Holder position.
  4. After the divorce, revise your estate plan as soon as possible. You should do a new will, and if part of the existing plan, revise a trust to take your ex-spouse out of the documents.

Talk to Tennessee Family Law and Estate Planning Experts to Learn More

As you know now, a divorce can complicate things during the estate planning process. Divorce can be stressful enough, and you don’t want to worry about how it will affect your plans for the future.

To ensure that you won’t run into problems down the line with your divorce and estate planning, consult with an estate planning lawyer at MHPS. We will bring compassion, personal attention, and comprehensive Tennessee family law expertise to prevent any estate planning issues following a divorce.

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