Estate Planning for Divorced & Remarried Couples
Whether you are a young couple with plans to start a family or an individual approaching retirement age, estate planning is a critical factor to maximize your quality of life for yourself and your loved ones.
In part two of ASR Law Firm’s free webinar series on Estate Planning for Different Stages of Life, lead attorney Anila S. Rasul explores estate planning strategies for divorced and remarried families.
No matter what stage of life you are in, estate planning is critical to your overall quality of life.
Explore the transcript of the above video as a reference to help you and your young family better understand Estate Planning for Young Families.
Thank you all for joining us for the second webinar in our 3-part series – on examining 5 important estate planning consideration for divorced and remarried individuals.
For those of you who joined us for our first chat, you’d remember that we discussed some important aspects of estate planning for newly married couples and young families.
Well today, we’re going to address some important considerations that arise when those marriages don’t necessarily work out and are perhaps followed by second marriages.
As we discussed before, spouses typically play very important roles in each others’ estate plans, specifically holding fiduciary roles such as Personal Representative of a Will or Trustee of a Trust or being the main beneficiary to the deceased spouse’s assets.
A dilemma arises, however, when that couple decides to separate or is no longer married since those roles must be then assigned to someone else.
My hope today is that our discussion will reveals the importance of updating and revising your estate planning documents immediately upon filing for divorce by:
– appointing back up personal representatives or assigning guardians for minors in one’s Last Will & Testament
– Or the need to have succession trustees named in a Living Trust
– As well as looking into the effects a divorce filing may have on a Durable Power of Attorney and Healthcare Directives
I might add, there’s also a need to update beneficiary lists on:
– Life Insurances
– Pay on Death bank accounts
– Transfer on Death investment accounts
So let’s jump in…
Effects of Divorce on Estate Planning in Florida
So, in Florida, when considering the effects of divorce on Estate Planning, it is really important to consider the specific stage of the divorce process.
This is because Florida law provides certain protections to a divorced decedent when it comes to dispositions that are inadvertently left to an ex-spouse via a will or trust.
This law takes into consideration the scenario in which (1) a person gets married (2) makes an estate plan with their spouse in mind as the primary beneficiary and/or fiduciary, (3) gets divorced, then (4) passes away without having altered their estate planning documents.
Now the purpose of this law really is to remove the absolute immediate need to revise one’s estate plan after a divorce and to prohibit an ex-spouse from making a claim against the decedent’s estate and seeking an inheritance that was no longer intended.
Essentially, it serves to protect a person from finalizing a divorce, dying the next day without having time to update their estate plan and then having their entire estate (or lion’s share thereof) being passed to the person they just divorced.
In Florida, statute 732.507(2) states that a provision of a Will signed by a married person that affects the spouse is void upon divorce.
What does this mean? Essentially, this law states that after a divorce a Will shall be administered and construed as if the former spouse predeceased the decedent unless, of course, the Will itself or divorce judgment expressly states otherwise. (oh, and for those of you who may not be familiar with the term, decedent means the person, or spouse in our case, who has passed away)
Now, to be clear, this rule applies regardless of the role of the ex-spouse in the estate plan – meaning they could have been a beneficiary, personal representative, trustee, surrogate etc.
And basically, the same rule applies to Revocable Trusts and advanced healthcare directives as well.
It’s worth mentioning, however, there is one exception to the general Florida law: Powers of Attorney.
Powers of attorney vested in a spouse are terminated simply by filing a divorce action, as opposed to the actual entry of a final divorce decree that’s needed with a Will or Trust.
To illustrate this point, I once represented a couple who initiated a divorce proceeding, took the initiate of amending their estate documents immediately but then changed their minds just before the final divorce decree was entered and they reconciled. Since it’s not entirely clear what happens to a Power of Attorney in this situation (ie when the parties change their minds and no longer go through with the divorce), I suggested that they redraft their Power of Attorney to avoid any uncertainty regarding the validity of the document in the future.
Now, this example raises the issue of some other scenarios that the Florida statute does not consider. For example, what happens when a person remarries or no longer wants the originally named alternative to step into the role of the ex-spouse? Or more concerning, what happens if a person dies prior to the completion of the divorce? Will the to-be ex-spouse walk away with all the decedent’s assets? And what about that pesky Elective Share that we discussed in our first webinar that some of you may recall?
This is why I always recommend that my clients examine their estate planning needs, and redraft when necessary, at the beginning of every big life event to ensure that their objectives will still be met. And commencing a divorce is no different!
You see, since this law doesn’t kick into effect until a divorce is final and a judgment is entered, a spouse remains entitled to inherit in accordance with a decedent’s estate plan and remains protected by Florida’s homestead laws during the divorce proceeding itself.
Also, it’s important to remember that although Florida law will disinherit a prior spouse, it does not automatically replace them with the new spouse. Therefore, if it’s a person’s intention to make their new spouse a beneficiary or fiduciary, they must do so through redrafting their estate plan.
Now, not to complicate matters even further, but in Florida you can never completely disinherit your spouse (without their consent, of course) due to the Elective Share rules that states that spouses are entitled to 30% of an estate if they have not been adequately provided for.
The hiccup here lies in that this Elective Share may be exercised regardless of any newly revised plan if a person dies prior to the end of the divorce, thereby allowing a to-be ex-spouse to still end up inheriting more than the decedent intended to leave him or her.
So you may ask, why amend my plan when I first file for divorce if my to-be ex-spouse can supersede it by simply exercising the Elective Share? Well my answer is simple; I always advise my clients that this shouldn’t be a reason not to revise your plan at the time you commence your divorce because it’s always better to be in control of what may be inherited if you pass away prior to the completion of your divorce than having your ex choose for themselves!
In fact, many of my family law colleagues agree with this sentiment and recommend that their clients seek counsel of an estate planning attorney during their divorce process. In such cases, both attorneys will coordinate with each other to ensure that the estate planning documents and any separation agreement or property division agreed to in the divorce matches.
For example, including provisions in their marital agreements requiring the parties to maintain a certain amount of life insurance policies to ensure child support is paid beyond the death of either parent etc. AND then making sure the beneficiaries on such policies align with those intentions.
So, the takeaway really is that redrafting your estate plan should be one of the first things you tackle after filing for divorce.
Now, assuming you’ve decided to redraft your estate plan, the question then becomes, WHO steps in to fill those roles of beneficiary or fiduciary?!
There are a lot of things to consider when selecting replacements, especially if there isn’t a new spouse to fill those roles which is often the case when people choose to redo their estate plans at the commencement of their divorce proceedings or shortly thereafter.
Many folks revert to naming their parents, siblings or children as their beneficiaries and fiduciaries. But as we know from our prior chat, those options also come with their own set of challenges.
This is where a qualified estate planning attorney should be able to guide you through those challenges to help you make the best decision during this transitionary time and beyond. And it goes without saying, the earlier in the process you seek assistance, the better the outcome.
So this brings us to…
Considerations with remarriage
Remarriages can be pretty tricky because usually one or both of the spouses may have to address the responsibility of prior relationships in their new plans – whether that may be alimony payments or providing for minor children.
And as a result, it’s common to find that clients turn to more than just their estate planning documents when planning for remarriages. They may also look into life insurance policies options, as well as, other financial vehicles to help protect and fund their estate planning objectives.
I’ve also found that one of the most effective ways in which to plan or account for any unintended or problematic consequences of estate planning as a remarried couple is to have a properly negotiated pre-nuptial or post-nuptial agreement (now sidenote: prenups are usually preferred because they’re easier to enforce if contested). These marital agreements allow both spouses to know exactly what will happen to each other’s assets in case of divorce or premature death.
Despite not being the most romantic topic, when used appropriately, pre- and post-nups are designed to avoid conflict rather than cause it.
Essentially, a well drafted agreement precisely defines which of the couple’s assets will be considered “marital property” and which will be considered “separate property.”
And since to be enforceable, these agreements must be drafted based on “full disclosure” of assets by both sides, they allow each spouse to know exactly what they may inherit from the other AND to securely leave certain assets to other heirs, particularly children of prior relationships, without their new spouse being able to contest that devise.
An example of how prenup agreements may be used for estate planning purposes is a situation I’m handling currently. My client is in the process of negotiating a prenuptial agreement with her to-be 2nd husband. Her family has owned a brownstone in NYC for a few generations and she wishes to pass it to her adult children. So she is using her prenup agreement to ensure that this particular piece of property is defined as “separate property” so it will end up with the 3rd generation of her family, rather than her new husband (in the case of divorce or death). This provision also made it clear to the to-be husband, in no uncertain terms, that the brownstone was never going to be an option for him – even if he ever chose to exercise his elective share rights later on.
Now this example also raises another issue: that a prenup agreement allows the parties to waive those certain spousal rights such as the Florida Homestead Act and the elective share rules, which are both very important concerns for estate planning purposes.
In fact, Florida’s homestead laws are of particular concern to many of my divorced clients especially when either spouse has children from a prior marriage because spouses are given high priority under Florida’s intestate succession laws and are even highly protected where a contradictory Will exists.
Under this law, a married homeowner (or a homeowner with minor children) cannot devise a property that qualifies as a “homestead” to anyone other than their surviving spouse… this applies whether the spouse is on the deed or not.
And if the married testator has children, a surviving spouse has a guaranteed right to either (1) a life estate in the homestead with the remainder interest to the children, or (2) a one-half interest as tenants in common with the testator’s children.
However, a spouse can choose to waive this guaranteed interest (though minor children can never waive an interest in a deceased parent’s homesteaded property) through their prenuptial agreement.
This scenario is often the case when remarried spouses move into a home previously owned by one of them.
This Segways us into my final consideration:
Planning for stepchildren
Many remarriages result in Blended Families, which are families consisting of the remarried spouses, their shared children and any children from previous relationships.
With such family dynamics, the parents (ie remarried spouses) must balance leaving an inheritance for these two to three groups of children… meaning their shared children, and each spouses’ other children.
A challenge arises when the assets to be devised are jointly owned by the couple. So needless to say, a lot of coordinating and precise drafting of estate planning documents is needed.
EXAMPLE: I recently drafted an estate plan for a couple shortly after they were married. The wife was pregnant with their first child together, but the husband had children from a prior relationship.
They were very concerned about the share of their joint investment account that each child would be entitled to. It ultimately took quite a bit of coordination between not only their matrimonial attorney and my office, but also between the husband’s ex-wife and himself regarding what would be left to their shared children (to ensure everyone was adequately provided for). After several months of back and forth, we finally came up with an equitable division of assets that everyone was happy with.
Now this was with a group of cooperative adults! As you can imagine, significant challenges can be encountered when the parties don’t agree.
In fact, one of the greatest challenges of an estate planning attorney in these situations is working around the family dynamics. And this is especially problematic when there is animosity between children from prior marriages and a new spouse and/or new children.
And these challenges are amplified when the age of the new spouse is close to or less than that of the children from a prior relationship… you may recall the Ana Nicole Smith case from a few years back?!
But as I’ve always preached, it goes without saying that leaving behind a plan that may be less than perfect far supersedes the outcome of not having a plan at all or having an incomplete plan in place when dealing with blended families.
So, I always encourage my clients to consider the following when drafting their estate plan to account for their blended family:
(1) the needs of all those you intend to leave your assets to (ie established adult children versus minors)
(2) their expectations (have you been promising them certain assets when you die)
(3) do what’s fair… although, I’ve come to learn that this is a pretty subjective determination and no one is ever 100% satisfied with the outcome.
(4) and finally, exploring other vehicles such as life insurance policies and other financial investment products to fund estates and “equalize” what’s being devised in efforts to ease any existing tensions amongst the remaining family members.
So as you can see there is quite a bit of overlap between family law considerations and estate planning considerations when dealing with divorces, remarriages and blended families. And to successfully accomplish both objectives cooperation and prioritizing by all parties is a must!
So, once again, to recap, my list of important considerations from an estate planning perspective when contemplating divorce is:
1. The need to redraft your plan, even temporarily, immediately after filing for divorce
2. The use of marital agreements to assist with the estate planning process AND
3. The need for coordination amongst spouses, attorneys and exes when dealing with blended families
And with that, I come to the end of my presentation. I hope you found relevance and value to this information.
Now I turn you over to, Frank and Rania, before taking any questions at the end.