Estate Planning After Divorce

Do you know what happens to your estate plan when you get divorced?

While the law does a good job of removing your ex-spouse from your estate plan (other than your ERISA-regulated retirement accounts), you should consider redoing your estate plan when you get divorced to be sure that your plan reflects your wishes.

Sadly, divorce is something that happens in many people’s lives.  If you and your former spouse had put together an estate plan while you were married, what happens to your plan if you don’t change the documents after you get divorced?

The following discussion comes with one very large proviso: the courts often allocate assets between spouses in a divorce, regardless of whose name is on the account, deed, title, etc.  Assuming that your divorce decree does not address the issue, here are the changes to your estate plan that automatically go into effect upon divorce.

If you named your spouse as a beneficiary under your will, which most couples do, upon divorce Washington law treats that former spouse as having predeceased you.  That means that your estate goes to the people who would have benefited it if your spouse died before you.  Suppose that you named your spouse as beneficiary, with your children as contingent beneficiaries.  Upon your divorce, your former spouse is no longer your beneficiary, even if you don’t change your will, and your estate goes directly to your children.

Two other very important estate planning documents are your durable powers of attorney for health care and property.  Most married people name their spouse as their attorney in fact (also called an agent) in both documents.  If you get divorced, you may very well not want your ex-spouse to have access to your assets or to be the person who can make health care decisions for you.  Under Washington law, if you name your spouse as your attorney in fact, simply filing for a divorce, annulment, or legal separation automatically removes your spouse as your attorney in fact.  However, relying on a third party to discover that you are divorced is not recommended.

Along with your will and durable powers of attorney, another set of documents that may control a significant portion of your assets when you die are the beneficiary designations on your retirement accounts and life insurance policies.  You should change these designations when you get divorced, but what happens if you don’t?

For your retirement accounts, the answer depends on whether the account is regulated under the federal Employee Retirement Income Security Act (“ERISA”), or if it is regulated under Washington law.

ERISA covers retirement plans that receive employer contributions, such as a 401(k) (but, if your employer makes contributions to your IRA, it may also be regulated under ERISA.  Check with your plan administrator).  Administrators of ERISA accounts will look to the name of the beneficiary rather than the beneficiary’s relationship to the account owner.  If you name your spouse, John Smith, as the beneficiary of your 401(k), and the two of you divorce (and the court did not issue an order specifically splitting the account), John Smith is still the beneficiary.

In contrast, accounts where you’re the only one who makes contributions, such as a traditional IRA, are governed by Washington law.  When you get divorced, your former spouse is treated as if he or she had predeceased you.  Let’s say that you named your spouse as the beneficiary of your IRA, with your children as the contingent beneficiaries.  Upon your divorce, your former spouse is no longer your beneficiary, even if you don’t change your beneficiary designation, and your IRA goes directly to your children.  However, if your IRA was community property (see my April 16, 2018 post for more on community property), it is very likely that upon your divorce, the court will allocate portions of your IRA between you and your spouse.

Life insurance policies are also governed by Washington law, and the same rules apply here as apply to IRAs.  Upon divorce, your former spouse is automatically removed as a beneficiary.

While the law does a good job of removing your ex-spouse from your estate plan (other than your ERISA-regulated retirement accounts), you should consider redoing your estate plan when you get divorced to be sure that your plan reflects your wishes.