With winter holidays such as Thanksgiving, Christmas, Kwanzaa and Hanukkah, many people experience feelings of excessive stress. Especially when relating to spouses and life partners. Studies show that divorce rates tend to spike following the holidays. Holidays are fraught with expectations and these expectations may be part of what causes the final rift in marital relationships.
If you anticipate or are experiencing a major life change, such as divorce, we sympathize with you during this difficult transition. As estate planning attorneys, we advise you that it is time to redo your estate planning documents and revisit the beneficiary designations on your financial accounts. If you haven’t gotten around to doing that yet, here is the game plan on how to proceed.
- Best Practice Tip – the property settlement agreement should specifically identify and address each asset, especially those that may have a beneficiary designation, such as life insurance, retirement plans, investment accounts, employee benefit plans, or assets subject to pay-on-death or transfer-on-death designations. The approach is simple. When a married couple divorces and as part of the divorce they settle their marital assets, the settlement should represent the completion of all financial matters stemming from the marriage.
- Meet with an Estate Planning Attorney after the Order of Dissolution is entered. Your estate planning attorney should review the final order as well as the property settlement agreement and consider the implications. Yes, this will require the painful process of pulling out your estate planning binder and reviewing each document page by page to find everywhere your former spouse is listed. Then substituting a new person for that role. This includes tasks such as removing your spouse as Co-Trustee of your Revocable Trust or removing them as the Personal Representative of your Last Will and Testament. Even more important is removing them as your Power of Attorney as this is a role that is currently active. Estate planning is a tricky area of law, so we advise against going at it alone. Consult an estate planning attorney for a full review of your existing documents and a frank discussion of all your new options.
- Review Financial Accounts – It is equally crucial to review each of your financial accounts, one by one, and assign new beneficiary designations. For example, many individuals have an IRA or life insurance policy that may comprise a substantial portion of their wealth. Yet, these assets are often overlooked when updating an estate plan after divorce. Updating your beneficiary designation even applies in that rare instance where you may wish to keep your former spouse as a designated beneficiary even though there is no legal obligation to do so. Beware of the common pitfall of removing your former spouse as beneficiary and instead adding on your minor children (those under 18 years of age in Florida). It is never advised to add minor children onto accounts, title to real estate, or as beneficiaries on financial accounts.
This is because if a minor child experiences the loss of a parent, and is entitled to receive an inheritance, Florida law governs how this inheritance will be managed until the child turns 18. This is through a court process called “guardianship.” Inheritance includes real estate, proceeds in a bank account, life insurance proceeds, stocks, CDs, cash in a safety deposit box/vault, or any other investments. When a child is set to inherit anything in excess of $15,000, a court must appoint a legal guardian to manage the minor child’s inheritance and to safeguard the minor’s interests. The process takes time, involves court expenses, and requires an attorney. All these fees usually come out of the inheritance. Note that although the surviving parent is considered a “natural” guardian, only a court can appoint them as a “legal” guardian. A way around the guardianship process involves creating a Trust through an estate planning attorney.
When Florida Law Kicks in After a Divorce
Now let’s say you got divorced and forgot to update your estate plan and your beneficiary designations away from the now former spouse. What happens now? The “revocation-upon-divorce” statute comes into play. A “revocation-upon-divorce” statute helps to correct an inadvertent transfer of wealth to the former spouse upon death. Generally, under these types of statutes, if a married individual names his or her spouse as a beneficiary, and subsequently the couple divorces, a “revocation-upon-divorce” statute deems the spouse as having predeceased the individual. Such statutes apply to any financial accounts that can be subject to a beneficiary designation, such as a life insurance policy, individual retirement account or annuity.
Specifically, in Florida, Fla. Stat. § 732.703 provides that a designation benefitting a decedent’s former spouse is void as of the time of the decedent’s marriage is judicially dissolved or declared invalid by court order, if such designation was made prior to the dissolution or court order. Note that this Statute applies to life insurance, qualified annuity or other similar tax-deferred contract held within an employee benefit plan, retirement accounts, an employee benefit plan, a payable-on-death account, a security or other account registered in a transfer-on-death form. The statute contains certain exceptions to its application, including plans or policies governed by federal law (such as a “401(k)” account) and state-administered plans.
Experiencing a divorce during the holiday season is a very difficult feat. We encourage you to schedule a consultation to ensure that your actual intent is carried out properly and reduce the potential for future litigation between you and your former spouse. Contact OC Estate & Elder Law at (954) 251-0332 or email@example.com to help protect your family as well as your peace of mind.