Estate planning is an essential step in the divorce process. Careful attention must be afforded to the complex issues that may arise when dealing with an estate plan where a divorce action is pending or has been finalized. Your estate plan should be reviewed and updated after separation and before the initial filing of the divorce complaint as well as after the final decree of divorce has been entered.
Pennsylvania does have “safeguards” in place regarding divorce and estate planning. When someone divorces in Pennsylvania, there are statutory restrictions on how an ex-spouse is treated when named in estate planning document. However, it is still necessary to update your estate planning documents for many reasons which we will discuss. It is also important to understand the statutory restrictions, when the restrictions are applicable, and to confirm that these alterations are consistent with your estate planning goals. Generally, there are three estate planning documents: (1) Last Will and Testament; (2) Financial Power of Attorney; and (3) Health Care Power of Attorney with a Living Will. Additionally, whenever discussing an estate plan, your non-probate assets which contain a beneficiary designation must also be reviewed.
What Happens to Your Financial Power of Attorney and Health Care Power of Attorney if your Ex-Spouse is your Agent?
Upon the filing of a divorce proceeding, the designation of your ex-spouse as your agent under your Financial Power of Attorney and the designation of your ex-spouse as your Health Care Agent is automatically revoked unless from the document it is clear that the designation was intended to survive the filing for divorce. If you and your spouse are separated, but the divorce has not been filed the power of attorney is still in full effect. Therefore, upon separation it is important to make sure that you immediately update your power of attorney documents if you no longer wish your spouse to be your agent.
Will Your Ex-Spouse Inherit Under Your Will ?
Upon a divorce proceeding being filed and grounds for divorce being established, this invalidates any provisions in your Last Will and Testament favoring your ex-spouse. Therefore, you spouse would be treated as though he or she predeceased you. This can become a tricky area where there is a potential for minors to inherit from your estate. Careful drafting techniques must be used to create a testamentary trust on behalf of the minors, or alternatively, establishing an inter-vivos trust which would be named as the beneficiary of your will.
The complexity of estate planning during a divorce often arises where a divorce is pending; however, grounds have not yet been established. Or where you and your spouse are separated but the divorce has not been filed. Should you pass away in this interim period and you have not changed your will, your spouse will still inherit from your estate. Upon separation from your spouse you should meet with an attorney to review your estate planning documents in lieu of your impending divorce.
Why you Should Update Beneficiary Designations During Divorce
Another important consideration when divorcing is your beneficiary designations. Any designation of a spouse as a beneficiary of a life insurance policy, annuity contract, or other contractual agreement becomes ineffective upon divorce in Pennsylvania. Such a designation also becomes ineffective if the owner died during divorce proceedings after grounds for divorce have been established. However, employer-based benefits are treated differently. Employee Retirement Income Security Act (“ERISA”) preempts Pennsylvania law that mandates the revocation of beneficiary designations upon divorce. Therefore, is so important to make sure that these beneficiary designations be updated upon separation from your spouse.
For a more complete explanation of estate planning during divorce, or to have your estate planning documents updated, please contact OWM Law and ask to speak with an Estate Planning Attorney at 610-323-2800.