Keeping Your Ex Out of Sight, Out of Mind and Out of Your Estate: Estate Planning After Divorce
/When a couple divorces, a court will dictate how they unwind their relationship and their finances, but the ex-spouses must take the initiative to reconstruct their estate plans.
It is very common for married couples to sign “I love you” wills, in which each spouse leaves everything to the other. However, even in the most amicable of divorces, ex-spouses typically do not intend for the other to inherit all – or any! – of their property. Under New York law, unless the will provides otherwise, a divorce will nullify any testamentary provision for the benefit of an ex-spouse, including the nomination of the ex-spouse as an executor or other fiduciary therein. Relatedly, the law also revokes any beneficiary designations on securities, life insurance policies or retirement plans in favor of the ex-spouse.
However, while the divorce will cut off the ex-spouse’s right to a share of the estate, it will not cut off any rights the ex-spouse’s family members may have. For example, assume that, at some point during their 72 day marriage, Kim Kardashian and Kris Humphries executed “I love you” wills that also made provisions for members of each other’s families – specifically, Kris’s will appointed Kourtney and Khloe as co-executors and established college funds for Kendall and Kylie. When the divorce was finalized, Kris (understandably) never wanted to speak to another lawyer again and did not contact his trusts and estates attorney to update his estate plan. Upon his death, although the divorce revoked Kris’s bequest of his entire estate to Kim, the bequests to Kendall and Kylie and his appointment of Kourtney and Khloe as co-executors remain effective.
Furthermore, the New York statute that cuts off an ex-spouse’s right to inherit is only applicable when the divorce has been finalized – not while it is pending. As such, if Kris had died during the pendency of his two year long divorce proceedings, Kim would have been entitled to inherit his entire estate pursuant to Kris’s “I love you” will. While his family may have had an argument that Kim should be disqualified on the grounds of “abandonment,” they would have to commence a disqualification proceeding and prove that Kim left the marital abode without Kris’s consent and with no intent to return. Given the nature of their divorce, it may be difficult to prove that Kim left without Kris’s consent – she probably did so at his request!
Consequently, it is advisable that spouses revisit their estate plan as soon as divorce proceedings begin, if not sooner. It should be noted, however, that one cannot disinherit one’s spouse entirely without the spouse’s consent prior to the divorce being finalized. New York provides spouses with an “elective share” of 1/3 of the deceased spouse’s entire estate (not just probate assets; property passing by operation of law or by beneficiary designation is included as well). This means that if Spouse A attempts to disinherit Spouse B, Spouse B can still assert her right to an elective share and receive 1/3 of Spouse A’s estate. If Spouse A revokes her “I love you” will and does not sign a new will, then her estate will be distributed pursuant to New York’s intestacy law and Spouse B will be entitled to more than the elective share – she will effectively receive more than ½ of Spouse A’s estate.
Therefore, one who is contemplating divorce or who is in the midst of a divorce should update their estate plan with the elective share in mind. One strategy would be for Spouse A to bequeath to Spouse B property that is approximately equal in value to 1/3 of Spouse A’s total estate, but comprised of assets that are less attractive than other assets Spouse A owns (for example, property that is not appreciable). Spouse A should keep in mind that, if Spouse A and Spouse B own their home jointly as tenants by the entireties, Spouse A’s interest in the house will be credited to Spouse B for purposes of determining Spouse B’s elective share. Another strategy would be for Spouse A to take out a term life insurance policy equal to 1/3 of Spouse A’s estate and name Spouse B the beneficiary. If Spouse A predeceases Spouse B during the pendency of their divorce, then Spouse B’s elective share would be satisfied by the insurance proceeds, rather than Spouse A’s other assets. Spouse A should be careful to cancel the policy as soon as the divorce is finalized, however.
Once the divorce is finalized, Spouse A still cannot forget Spouse B entirely when updating her estate plan. First, to the extent that Spouse A is obligated to make provisions for Spouse B in her will, either as a result of the terms of a prenuptial or postnuptial agreement or court order, she must do so. Second, to the extent that Spouse A and Spouse B have children in common, Spouse A must think through the various contingencies that could still give Spouse B rights in and to her estate.
For example, assume that, at the time of her death, Whitney Houston’s daughter, Bobbi Kristina, was a minor and that Whitney’s will provided for her entire estate to be distributed to Bobbi Kristina outright. Whitney’s ex-husband, Bobby Brown, as Bobbi Kristina’s legal guardian, would be entitled to receive Whitney’s entire estate on behalf of Bobbi Kristina (albeit only as a custodian; he would be required to distribute it to Bobbi Kristina when she turned 18). Upon Bobbi Kristina’s untimely death a couple of years later, unless she had executed a will (which most 22-year-olds do not), Bobbi Kristina’s sole heir would be Bobby – and he would thus effectively inherit Whitney’s estate.
(A similar result would occur if Whitney had died without a will, except that, in that scenario, Bobby (as Bobbi Kristina’s legal guardian) would have priority to letters of administration in Whitney’s estate as well – meaning that her ex-husband would be in charge of her multi-million dollar estate.)
To ensure that one’s ex is not allowed to participate in one’s estate (either as a fiduciary or, ultimately, a beneficiary), one should consider incorporating trusts for the benefit of any children one shares with an ex. Using the Whitney Houston scenario as a further example, in this way, Whitney could nominate a trustee to hold the property for Bobbi Kristina and could provide that, in the event that Bobbi Kristina died unmarried and without descendants, the property left in her trust would be distributed to … anyone but Bobby.
Divorce is a common phenomenon – 50% of American marriages will ultimately end in divorce – and upends everything in the spouses’ lives, including their estate plan. As a result, people who are thinking about divorcing, are in the midst of a divorce, or are finding themselves on the other side of their divorce should be sure to consult their trusts and estates attorney to ensure that their estate plan still does what it’s supposed to do.