The prevalence of divorce and dissolution is widely reported in the press. Estimates are that at least 40% of first marriages end in divorce or dissolution while the percentage of second and third marriages terminated by court decree is even higher. What is the effect of a decree terminating a marriage on an existing estate plan? What will happen if one of the former spouses dies after the end of a marriage without changing his or her will or trust?
Under Ohio law, a court decree ending a marriage and, in some cases the execution of a separation agreement, will revoke instruments under which property would otherwise pass to an ex-spouse. Not all estate planning related documents will be treated as having been revoked or terminated by a decree so a review of all estate planning documents is still advisable. The effects of the termination of marriage on typical estate planning documents is summarized in the remainder of this article.
- •Wills. Ohio law provides that the entry of a decree of divorce, dissolution or annulment, or, if the parties actually separate, the execution of a separation agreement intended to fully and finally settle the prospective property rights of the parties will revoke all bequests to an ex-spouse contained in a will, unless the will specifically provides that the bequests to the spouse survive the termination of the marriage. Any appointment of the spouse as executor, trustee or guardian is also revoked. Property which would have passed to the ex-spouse will pass to the contingent beneficiaries as if the ex-spouse had died before the decedent.
- Revocable Trusts. A former spouse is treated as having predeceased the grantor of a revocable trust and property will pass to the alternate beneficiaries when the grantor and his or her spouse are divorced, or a separation agreement of the type described in the discussion on wills is executed. Any appointment of the ex-spouse as trustee is revoked as is any power of appointment granted to the spouse in the trust.
- Powers of Attorney. The designation of a spouse as an attorney-in-fact in a power of attorney is revoked under the same circumstances which cause a will or revocable trust to be treated as having been revoked and the former spouse will have no authority to act under the power of attorney unless the instrument provides that the appointment survives the termination of the marriage. The statute governing durable powers of attorney for health care does not specifically deal with the issue of divorce. However, the general statute which states that a power of attorney is revoked by divorce appears to be broad enough to include health care powers of attorney.
Many commonly held assets pass outside of a will or trust and are governed by beneficiary designation or the form of ownership. Most of these arrangements are also affected by the termination of a marriage by divorce of dissolution but not by the execution of a separation agreement even with actual separation.
- Survivorship Deeds. Many married couples own their residences as joint tenants with rights of survivorship so that the property will pass to the survivor of them without reference to a will or action of the Probate Court. Divorce causes the survivorship tenancy to convert to a tenancy in common which means that each owner has an undivided one-half interest in the property which will pass via the deceased’s estate plan and not automatically to the other owner. This result can be overridden and the survivorship tenancy maintained by the decree which terminates the marriage.
- Joint Financial Accounts. Bank accounts and investment accounts are frequently held by spouses jointly with rights of survivorship. Upon the termination of a marriage, unless the decree provides otherwise, the survivorship rights in such accounts terminate and each party will own an undivided interest in the property held in the account in proportion to the spouse’s net contributions to the account. Other personal property, such as automobiles, held with survivorship rights is treated in the same manner.
- Beneficiary Designations. With two important exceptions, beneficiary designations naming a former spouse as the beneficiary of life insurance, IRAs, annuity contracts and payable on death accounts (POD) are revoked by a divorce or dissolution. The exceptions are: (1) A life insurance beneficiary designation signed before May 31, 1990 is not revoked and will still be valid, and (2) benefits under a plan subject to ERISA, such as an employer sponsored pension plan and employer provided life insurance, are not governed by Ohio law. The U.S. Supreme Court has held that ERISA plan benefits must be paid to the beneficiary named in the plan documents, even if that beneficiary is no longer married to the plan participant. Federal law, not State law, governs such plans.
- Transfer on Death (“TOD”). Ohio law permits the owner of real property to record an affidavit designating a beneficiary to received his or her interest in the real estate at the death of the record owner. (Prior to December 28, 2009 this was done by filing a transfer on death deed.) Both the current and former statutes are silent about the effect of divorce on the designation of a former spouse as a TOD beneficiary and it is not clear that the provisions of the statute discussed under the beneficiary designation topic of this article applies to TOD designations.
This summary is based on Ohio law. The laws of other states may differ and may apply if after a divorce a party relocates to another state and does not review the estate plan. If you or a family member experience the termination of a marriage it is important to carefully review all aspects of your estate plan to make sure that it reflects your current goals and to avoid unintended results.
For more information, contact Roger Whitaker.