Monday, January 3, 2011

Estate Planning and Divorce

What are the implications for my estate plan (or my estate planning) if I am getting divorced?

This is a difficult issue for many people who are going through a divorce. Questions revolve around: What can be done with my existing estate plan? What if I die before the dissolution (divorce) is final? Will my spouse or domestic partner receive all my assets? Can I change my estate plan during the dissolution? The following should help you answer some of the difficult questions you may face.

Once dissolution papers have been filed with the court, automatic restraining orders take effect which have a big impact on the ability of a spouse to make or change an estate plan. The automatic restraining order which impacts estate planning reads as follows:
"... you and your spouse or domestic partner are restrained from ... creating a nonprobate transfer or modifying a nonprobate transfer in a manner that affects the disposition of property subject to the transfer, without the written consent of the other party or an order of the court. Before revocation of a nonprobate transfer can take effect or a right of survivorship to property can be eliminated, notice of the change must be filed and served on the other party."
What this means, in plain English, is that insurance policies, pension plans, IRAs, pay on death bank accounts, revocable trusts, and joint tenancies (and other nonprobate property) cannot be altered without the written consent of the other spouse (or a court order). Note that this restraining order does not prohibit the revocation of a nonprobate transfer (including the severance of a joint tenancy), provided that notice of the change is filed and served on the other party; and it does not prohibit the alteration or revocation of an existing will, or the publication of a new will.

So, if you desire to alter an existing revocable trust and you know that you will be filing (or receiving) dissolution papers, you should probably attempt to alter the existing trust before the dissolution papers are filed. If papers are already filed, you must get consent or a court order, or you will have to wait until the dissolution is final. In addition, a new will should be drafted so that your separate property and one half of the community property will be left to beneficiaries of your choosing (and not beneficiaries determined prior to the knowledge of the dissolution).

Once your dissolution is final, you will be happy to note that both probate transfers (wills) and nonprobate transfers
(see above) to ex-spouses are invalidated under California law. California Probate Code Section 6122 automatically revokes a will, or any provision in a will in favor of a former spouse (or nominating a former spouse as executor, trustee, conservator, or guardian, or granting a former spouse a power of appointment) when a dissolution is final. (Note that these rules do not apply to a legal separation, nor to dissolutions occurring prior to 1/1/85).

California Probate Code Section 5600 invalidates any nonprobate transfer (including, for example, pension plans, IRAs, pay on death bank accounts, revocable trusts, and joint tenancies) to an ex-spouse when a dissolution is final [unless 1) the transfer is irrevocable, or 2) if there is clear evidence that the transferring spouse intended to preserve the transfer to the former spouse, or 3) a court has ordered otherwise]. Please note that section 5600 (e) specifically excludes life insurance policies from this rule.

[Lawyers: please note that this rule may be preempted by federal law regarding employer provided benefits. Egelhoff v. Egelhoff, 121 S. Ct. 1322 (2001). (ERISA may preempt state law revoking a spouse's right as beneficiary of employer provided life insurance). It is advisable to review beneficiary designations for employer-provided benefits on dissolution.]

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