Last month, Stacey and I attended the winter Estate Planning Council of Seattle meeting, which featured a presentation on “Estate Planning Minefields in Divorce.” Isn’t divorce enough of a minefield on its own? While it may be liberating to some to be free of a toxic relationship, other people find themselves broke, stressed, and shell-shocked following a divorce. Under these circumstances, it may be tempting to put off estate planning concerns to happier days, but updating your estate plan when your marriage dissolves is not something to delay. Here’s why:
Washington is a community property state. In a nutshell, this means that all property (income, benefits, investments) acquired during a marriage, or used to support you and your spouse during your marriage, is generally considered to be “community property” — and spouses share community property 50-50. For couples who begin a marriage with relatively equal amounts of property (usually next to nothing if they marry young), a Community Property Agreement can be a useful estate planning document for allowing a surviving spouse to inherit all the property of the first spouse to die without a probate.
A Community Property Agreement usually declares that: (1) All of a couple’s existing property is community property; (2) All property they will acquire in the future will be community property; and (3) When one spouse dies, the other receives all the community property. Unless the Community Property Agreement specifically states that it is terminated upon separation or filing for divorce, if one spouse dies while the divorce is still pending, the surviving spouse may get everything under the Community Property Agreement. The best way to avoid this outcome is to request your attorney to revoke the Community Property Agreement. However, unless the agreement specifically includes terms that allow one spouse to revoke it, both spouses will need to agree that it should be revoked.
When someone files for divorce, a temporary restraining order may prevent the parties from changing their beneficiary designations or transferring assets until the divorce is final. So, what do you about your estate plan when a divorce is pending? You may not be able to do anything about the disposition of community property until a settlement is worked out with your soon-to-be-former spouse. You can, however, change the disposition of your separate property by having a new Will drafted during the divorce (sometimes called a “bridge Will.”) Taking this step can be critical because, unless a Will states otherwise, a gift to a spouse in a Will is invalidated not upon filing but only when the marriage is officially terminated when a divorce is final.
After the divorce is final, you should revise your estate plan to account for your new financial situation. And don’t forget to revise beneficiary designations on all your accounts! While Washington law automatically invalidates beneficiary designations made in favor of a spouse when the marriage is terminated, this law does not apply to beneficiary designations on federal retirement accounts governed by ERISA (The Employee Retirement Income Security Act of 1974). Former spouses can and do inherit retirement accounts under ERISA long after divorce when the former spouse who was the owner of the account fails to update the beneficiary designation.
The bottom line? If you want to avoid your estranged or former spouse inheriting all (or any) of your estate, meet with an attorney to update your estate plan both during and after the divorce.
Photo credit: Jackie on Flickr