Recently, I tackled the realities of estate planning after a divorce, especially where one or both parties have remarried. It can be tricky to make sure your assets go where you intend them to (see below for previous blog). Trickier still is what to do DURING THE PROCESS of divorce.
A colleague of mine who is a divorce attorney told me about a case where the husband died before the divorce was concluded. Because the husband had not considered estate issues, his soon-to-be ex-wife now became his fully legal widow. She inherited all of his assets. We can safely assume that this was not his intent.
The process of divorce, even when it is not contested, can take a minimum of six months. Many people separate prior to divorce which means the period that the marriage is in limbo is actually much longer. Most people will live long enough to suffer a great deal through their divorce and even after. But before final judgment of divorce is granted by the court, you are in a legal limbo period in which the spouse you are divorcing could still inherit your estate if you die or have power of attorney to make medical and financial decisions on your behalf if you become incapacitated.
When you are married (and even while separated), you can dispose of your assets in a will or trust pretty much as you wish (keeping in mind certain restrictions regarding community property and spousal election). However, when you actually file for divorce with the court, there are restrictions placed on how you dispose of your assets (see below for the discussion on “ATRO”).
If you find yourself in the unpleasant position of hiring a divorce attorney, it is most definitely the time to hire a good estate planning attorney as well. If you were represented by an estate planning attorney when you were together, it may be a conflict for that attorney to represent either or both of you. Your divorce attorney and estate attorney can work together to protect your assets and interests.
Below I’ve outlined the legal “nitty-gritty” of divorce as it applies to estate planning. Even just a cursory glance through the discussion should make clear that good legal counsel during this time is essential. Again, be sure you have a good legal team with both an divorce attorney and an estate planning attorney working together to protect you.
What is ATRO and how will it affect you?
Prior to filing for divorce a certain set of rules applies to married couples in California. A married person can unilaterally control the disposition on death of one half of any community property assets and all of their separate property assets. However, upon filing the dissolution petition and issuance of a summons, a new legal ball gets rolling called the automatic temporary restraining order (“ATRO”). The ATRO immediately imposes four different rules:
- First, the ATRO prohibits each spouse from cashing, borrowing against, canceling, transferring, disposing of, or changing the beneficiaries of any insurance or other coverage, including life, health, auto or disability, held for the benefit of the spouses and their children.
- Second, the ATRO also restrains each spouse (1) from transferring any property, real or personal (except in the usual course of business or for necessities of life); and (2) from changing the death beneficiaries named on any nonprobate asset (such as retirement plans, annuities and revocable living trusts). Spousal consent or a court order is needed to accomplish any changes.
- Third, the ATRO, however, still allows each spouse to revoke a revocable living trust, or other nonprobate transfer, and also to sever a joint tenancy, provided that notice of any such change is filed with the court and is served on the other spouse before the change takes effect. Severing the joint tenancy, and thereby creating a tenancy in common, is important to prevent the other spouse from inheriting the entire joint tenancy asset according to the right of survivorship should one spouse die.
- Fourth, the ATRO also allows each spouse, without notice or permission, to create, modify or revoke a will; create an unfunded revocable or irrevocable trust; and otherwise modify a nonprobate transfer, such as a trust, in a manner that does not affect the disposition of the property – for example, changing the designated successor trustee of an existing trust. Thus, either spouse – without the permission of the other spouse or a court order – can create an unfunded living trust that would be funded on death by way of a pour-over will in order to effectuate estate planning changes. (Unfunded means that title to assets have not changed to the trust but assets are just listed in the trust.)