Death and divorce—both events are extremely difficult and stressful in and of themselves. However, when death and divorce happen at roughly the same time, the consequences can be unexpected and may seem wildly unfair. Separation and divorce can have a significant impact on estate planning issues, which require diligent attention when marital issues arise.  Otherwise, the death-­and-divorce cocktail may shake out in a very unintended way.

Prior to Divorce
When a couple begins to live separate and apart (which may include a separation under the same roof), without obtaining a limited divorce or legal separation order and without signing a separation agreement, the fact of the estrangement alone generally has no legal effect on the inheritance rights or fiduciary authority of a surviving spouse.  In other words, if a spouse dies during an estrangement, the survivor with rare exception has the same rights he or she would have had in an intact marriage.

A marital estrangement does not revoke the appointment of an agent under an advance health care directive; a spouse appointed as health care agent (notwithstanding the estrangement) retains the right to make medical decisions if the other spouse becomes incapacitated—including a pull-the-plug decision. An estrangement also does not revoke any powers a spouse may hold under a general power of attorney, a document that is typically written to grant one spouse broad authority to manage all aspects of the other’s finances, including the power to sell property, close accounts, change investments, withdraw funds, sign checks, and take a variety of other actions.

An estrangement does not revoke a beneficiary designation or a will.  An estranged spouse retains the right to benefit from a life insurance policy or a retirement account, if he or she is the designated beneficiary, and to receive property left to him or her under a will. An estranged spouse may also serve as personal representative under the other’s will and as trustee of a trust, if appointed as such in the document. Estrangement does not, by itself, revoke these fiduciary appointments.

In every state but Georgia, a surviving spouse has inheritance rights (often called the “elective share”) and cannot be completely disinherited, even if the couple is estranged and even if the deceased spouse left a will purporting to disinherit the survivor. State laws vary as to the amount of the spouse’s elective share, but, typically, it is one-third to one-half of the decedent’s total estate. Taking his or her elective share (in lieu of any inheritance provided to him or her under the deceased spouse’s will) may also mean that the surviving spouse takes assets in a different way than what the will provides. For example, where the will directs that assets pass into a trust for the benefit of the surviving spouse, state law may allow the surviving spouse to renounce the will and instead take his or her elective share outright and free of trust.

Simply revoking a will does not disinherit a spouse during an estrangement. If a spouse dies without a will (i.e., intestate), the surviving spouse has inheritance rights that differ from state to state, but that generally entitle him or her to somewhere between one-third and 100% of the deceased spouse’s probate estate. This intestate share is often larger than what the surviving spouse would get by electing against a will that purported to disinherit him or her. A surviving spouse also has a priority right to serve as personal representative of the deceased spouse’s estate. Revoking a will upon estrangement may also cause other problems, such as causing a child to inherit assets outright and free of trust when he or she is too young (i.e., by disrupting an existing estate plan that includes provisions for a trust).

It is the rare separated spouse who would actually want his or her soon-to-be-ex to have pull-the-plug authority, nearly unfettered power to interfere with his or her financial affairs, the right to serve as personal representative or trustee, and the right to inherit all or a significant portion of his or her estate. In our experience, separated spouses are not often on quite such friendly terms with one another. There are measures that a person can take during the separation period, but prior to the divorce, which may help address these concerns.

Beneficiary Designations: Certain beneficiary designations may be changed (e.g., to remove the spouse as beneficiary and replace him or her with one’s children, other family members, alma mater, etc.) without a divorce decree or the signed consent of the spouse. Examples of these include:
• private and group life insurance beneficiary designations;
• pay-on-death (POD) and transfer-on-death (TOD) designations of non-retirement financial institution accounts (checking, savings, CDs, mutual funds, and brokerage accounts);
• individual retirement account (IRA) beneficiary designations; and
• some non-qualified retirement plans.

However, certain retirement and pension plans, such as the Thrift Savings Plans (TSP), federal pensions (FERS and CSRS), and plans subject to ERISA (e.g., a 401(k)) do not permit a participant to change the beneficiary from his or her spouse prior to divorce (unless the spouse signs a written consent). Without a court order, generally these designations cannot be altered until a final judgment of absolute divorce.

Last Will and Testament: A will can be changed at any time, without a divorce decree or the signed consent of the spouse, to ensure that an estranged spouse (i) gets no more than the elective share and (ii) will not have decision-making authority with regard to any aspect of the estate’s administration. It is usually prudent to update one’s estate plan again after the signing of a separation agreement and to obtain releases to change beneficiary designations simultaneously with the signing.

Powers of Attorney and Health Care Directives: An individual can change his or her power of attorney and health care directive at any time, without a divorce decree or the signed consent of the spouse. There is no requirement to name the spouse to serve as agent under these documents. A party estranged from his or her spouse should execute a new health care directive (revoking any earlier directive) and give someone else the authority to make medical decisions; without a directive, hospitals will typically take instructions from the spouse— even an estranged spouse. A person can revoke his or her power of attorney at any time (whether or not a new person is appointed as attorney-in-fact).

After the Divorce
A marriage officially and permanently ends when a court enters a judgment of absolute divorce. An absolute divorce differs from a limited divorce (Maryland), legal separation (D.C.) or divorce from bed and board (Virginia). Only an absolute divorce permits the former spouses to remarry and terminates all rights to the estate of the other spouse (absent agreement otherwise). Disposition of the parties’ assets will be resolved either by a court or by agreement of the parties. If the parties have agreed to waive rights to each other’s assets (in whole or in part), some follow-up work may be required to effectuate these waivers. For example, in order effectively to change the designated beneficiary of a retirement plan governed by ERISA, a participant must file a new beneficiary designation with his or her employer, even though his or her spouse waived the right to be designated beneficiary under the marital settlement agreement. An ERISA-plan administrator must follow the instructions on the participant’s beneficiary designation even if a separation agreement provides for a waiver of rights. This means the personal representative of the decedent’s estate may have to sue the former spouse to get that spouse to return the retirement benefits to the estate, which can be a very costly and lengthy process without a guaranteed result.

Unlike an estrangement, a divorce does have a legal impact on the parties’ estate plans. In many states (like Virginia and Maryland), divorce revokes provisions of a will made for the benefit of the former spouse and revokes provisions conferring powers on the former spouse or nominating the former spouse as a fiduciary. In D.C., a divorce and final property settlement revokes the wills of both spouses—that is, the entire will, not just the provisions benefiting the former spouse—regardless of the testator’s actual intent.  Therefore, a party who divorces in D.C. will need to sign a new will after the divorce is final to avoid dying intestate.

State laws governing the revocation-by-divorce of a life insurance beneficiary designation are even less uniform.  Parties are well advised to check their beneficiary designations to ensure that they direct those assets in accordance with current wishes.

Providing for a Former Spouse Voluntarily
Anyone is, of course, at liberty to provide for his or her former spouse voluntarily after a divorce.  Separation agreements often provide that any will executed after a divorce that benefits a former spouse will be valid, notwithstanding a waiver of rights under the agreement or the extinguishment of those rights by operation of law at divorce.

A settlement agreement may also provide for a spouse to be the beneficiary of a life insurance policy to provide for spousal support or child support after a payor’s death.

It is fairly common for parents of minor children, assuming they had a reasonably amicable divorce, to designate the other parent as trustee (or co-trustee) of trusts created for those children under their wills.  It is important that the parties execute the documents in the appropriate sequence and with the proper language so that there will be no challenge to the estate plan later.

Conclusion
Death and divorce may be unavoidable, but poor planning is avoidable. Divorced persons and those undertaking separation should take care to ensure that their health care directives, revocable beneficiary designations, and other readily changed designations are updated to reflect their current wishes without delay, in order to alleviate as many of these potential pitfalls as possible, as early in the process as possible.  After the divorce, the estate plan should be reviewed again to ensure that it incorporates any obligations of a separation agreement, ties up any loose ends, and safeguards the principal’s objectives.