What Did I Forget in My Divorce?

A divorcing couple often has a lot to fight about. Who gets the house? Who gets the kids? Who gets what’s left? But even when a couple agrees on splitting up the family pie, who gets the kids and related issues, they often forget about their estate planning documents and who gets their assets when they die.

A lot of couples make their spouse beneficiary on everything, appoint the spouse to make medical decisions if incapacitated and even give the other spouse power of attorney. Virtually no person wants his or her ex-spouse to have decision-making authority for their medical decisions and especially not to hold power of attorney over financials. Few want an ex-spouse to inherit what they just got through fighting over. 

What happens to a Will or trust giving assets to an ex-spouse, powers of attorney and medical decision-making authorizations after divorce? The answer in most cases is the ex-spouse is treated as if the ex-spouse died.

Florida’s legislature has frequently visited this area. In its earliest visit, the legislature adopted a statute that provided provisions in a Will making an ex-spouse a beneficiary or fiduciary ended with a divorce judgment, even if the judgment did not address the Will. A prenuptial or postnuptial agreement can accomplish the same result, but many thought it is too difficult to discuss such matters before or after marriage, and this was often overlooked.

Florida has an elective share statute that provides a surviving spouse right to claim a portion of a dead spouse’s assets even if they would get less or nothing otherwise. The earlier version of the elective share provided a widow or widower a portion of the probate assets.

For a long time, Floridians could work around the statute by putting their assets in a revocable trust. Because the statute only addressed probate assets, assets in a trust were not included. 

A revocable trust could cut a surviving spouse out of the spouse’s elective share. The legislature closed that loophole and now an ex-spouse’s status as a fiduciary or beneficiary under a Will or trust ends with the divorce judgment.

The legislature later realized other aspects of asset distribution at death were often overlooked in divorce and that the overwhelming majority of people did not want an ex-spouse to get anything or exercise any control over assets or personal decisions after divorce. The legislature expanded its statutory cut-off of ex-spouses for Florida residents.

A judgment of divorce now terminates designation of an ex-spouse as a health care surrogate (a person appointed to make medical decisions if the appointing person is incapacitated). By statute, a spouse is given priority in making medical decisions for a spouse even without formal appointment. Ex-spouses have no such rights unless the document provides otherwise or is executed after the divorce. The same holds true for living wills, health care proxies and preneed appointment of guardians.

Designation of a spouse as beneficiary on life insurance policies, annuities, employee benefit plans, IRAs and pay-on-death accounts is terminated by a divorce judgment. Jointly titled assets such as bank accounts or real estate are converted from tenants by the entireties (under which the survivor owns 100%) to tenants in common (under which the survivor only owns 50% and the other 50% passes through the estate of the first spouse to die).

These rules do not apply in certain cases including when controlling federal law provides otherwise, if the governing instrument is signed by the decedent after the divorce, the divorce judgment orders something different, or laws of another state. The biggest asset falling within the exception are ERISA retirement accounts, the most common of which is a 401(k). If the ex-spouse is the designated beneficiary and no arrangement is made with the plan administrator to change the beneficiary, the ex-spouse gets the ERISA account.

Powers of Attorney granted to a spouse end even faster. In an effort to make sure a spouse does not clean out assets and impede the court’s ability to decide ultimate distribution, a power of attorney to a spouse ends when a petition for divorce is filed, which can be long before judgment.

The takeaway from Florida’s legislative efforts is that there is a lot more to think about than who will own what at the end of a divorce case. A power of attorney appointing a spouse ends when the divorce petition is filed, but provisions in a Will or trust giving all to the spouse will continue until the divorce is final. Some divorce cases seem to drag on forever and if a spouse has not changed the Will or trust, the other spouse could inherit everything if one dies before the marriage is dissolved by judgment.

Assets going to a spouse in the midst of a bitter divorce might cause one to turn over in the grave but there may be more important considerations. After divorce, designation of the ex-spouse to make medical decisions if incapacitated as well as beneficiary designations and fiduciary appointments terminate. That means a divorcing spouse needs to consider preparation of a new power of attorney, designation of health care surrogate, living will and similar fiduciary appointments to make sure he or she is personally and financially protected by appointment of a person he or she wants in those roles.

These matters are often not considered during the emotional turmoil of a divorce. They are often not thought of post-divorce. These are significant concerns and should not be overlooked.