Divorce can have important and immediate effects on estate planning. The immediate effects of divorce on estate planning are: termination of an entire will, canceling inheritance to the ex-spouse and to the ex-spouse’s family as well as converting tenancies by the entirety, joint tenancies or community property with right of survivorship to tenancies in common. Once a divorce order is issued, property that might have been covered by a previous will could be left to state laws of intestacy, so a client should create a plan that can be affected immediately upon divorce or before the divorce decree is finalized.
Life insurance is a practical way to avoid probate by insuring one spouse and naming the other as the beneficiary of the plan’s funds. When the client is going through the divorce process, they should be sure to change their named beneficiary on their plan or it could lead to significant problems. The Employment Retirement Income Security Act of 1974 (ERISA) is one of the problems that can take place if the client does not remove the ex-spouse as a beneficiary on their plan. ERISA is a federal law that preempts state laws regulating plans that fall under ERISA. One of the laws that ERISA enforces is that benefits under pensions may not be assigned or alienated. 29 U.S.C. §1056(d)(1).
An exception to this is a Qualified Domestic Relations Order or QDRO. A QDRO is a court order that permits the retirement plan to make payments to another party, called the “alternate payee” to receive all or a part of the benefits to be paid under the retirement plan. Under QDRO rules, an alternate payee cannot be anyone other than a spouse, former spouse, child, or other dependent of the plan holder.
A QDRO can be a temporary solution but is not always a sure avenue. In one case, a spouse named his wife as the beneficiary of his Savings and Investment Plan and did not name another beneficiary to the plan. When the parties divorced the wife agreed to let go of her interest in her husband’s plan. The husband never created a document removing his wife as a beneficiary and when he died the funds from the plan were distributed to the wife, and not his estate. This case exemplifies the complexities of estate planning in divorce cases and the steps necessary to ensure the security of one’s estate.
It will be to your advantage to consult an attorney who can effectively help you navigate the complications of estate planning during the divorce process. The Law Offices of Van A. Schwab has the expertise and experience to help you meet your needs.