A divorce can affect your estate plan
by Mandy Hicks
Hardly anyone goes through the process of putting together a comprehensive estate plan with the intentions of getting divorced from their current spouse thereafter. It is, however, a fact of life that becomes reality for a large portion of society. Divorce can affect more than just a person’s emotions and wallet. Here is a brief overview of the effect of divorce on your estate plan.
In Kentucky, a divorce or annulled marriage “revokes any disposition or appointment of property made by the will to the former spouse, any provision conferring a general or special power of appointment on the former spouse, and any nomination of the former spouse as executor, trustee, conservator or guardian, unless the will expressly provides otherwise.” KRS 394.092. The statute goes on to provide that property that would have passed to the former spouse by will now passes as if the former spouse predeceased the decedent. Put simply, Kentucky law basically “removes” the former spouse from your will, unless you expressly provide otherwise.
There is no statutory provision “removing” a former spouse from a trust (whether as a beneficiary or a current trustee) as there is for wills. Furthermore, Kentucky recently adopted the Uniform Trust Code, but this code likewise does not include a provision that takes away rights of a former spouse under a trust instrument. However, there is vast case law in Kentucky for all kinds of scenarios imaginable. The client is best advised to provide for divorce in the trust instrument itself. Include language in the trust documents that specifies if a divorce occurs, what exactly should happen to the trust. Cover this issue just as you would a death. Even if you believe your marriage is air tight, we’ve seen it all. Either scenario could occur, and you’re better off providing for this possibility than ignoring it.
Life Insurance Policies, Pension Benefits, and retirement accounts
A named designated beneficiary is entitled to proceeds from life insurance and retirement accounts, even if such beneficiary is the ex-spouse of the policy or account owner. Because of this, it is highly advisable to review with your advisors all beneficiary designations after divorce to determine if any need to be changed or otherwise updated. This should include 401(k)s, IRAs, 403(b)s, and any other type of retirement account or investment account.
Jointly Owned Property
It is quite common for married couples to own their home jointly, their car jointly, or have a joint bank account, or all of those. A divorce by itself does not change the ownership structure of the property. The divorce decree itself must address this, or the ex-spouses can (in some instances) change how the property is titled if they are both agreeable in doing so. We would caution you, however, that real estate ownership poses many issues, especially if a mortgage is involved, and attempts to change how the property is titled may prove unsuccessful if the mortgagee does not give its consent. If a person wishes to walk away from what was the marital home and let the ex-spouse retain ownership of the home, the person needs to make every attempt to remove himself or herself from any note that evidences debt on the home.
If the ex-spouses wish to continue to own the property in question, severing the joint tenancy relationship will make the ex-spouses tenants in common. That means that the right of survivorship feature (i.e. last to die takes all) is removed, and the ex-spouses may pass their respective interests in the property to their respective loved ones, whether that’s siblings, children, parents or a new spouse. Another common option is to petition the court to have the property sold (in cases other than bank accounts) and the proceeds divided between the ex-spouses. This is a more common scenario because, in many cases, the spouses want to make a fresh start away from any property the couple owned together.
Any major life change, including a divorce, should prompt a review of your estate plans. Take your estate paperwork to a qualified attorney with experience in this field to help you spot any potential pitfalls. If you’d like to talk to one of our qualified estate attorneys, contact Nathan Vinson at (270) 781-6500 or contact us through this form on our web site.