Call it the law of unintended consequences.
A final divorce, which is certainly consequential, can have all sorts of surprising consequences. Some might be welcome, while others can result in havoc.
Revocation of Beneficiary Designations
Life insurance is a perfect example. If you named your spouse as the beneficiary of your life insurance, then the divorce automatically revokes that designation and upon your death the proceeds of your life insurance policy will be payable to your named alternative beneficiary or, if there not one, to your estate.
Your IRA is also affected. A divorce automatically revokes your beneficiary designation of your former spouse. The proceeds will be payable to your named alternative beneficiary.
Sometimes the automatic revocation extends beyond your former spouse to include your former in-laws. That is the case for multi-party accounts, revocable trusts, and wills. For multi-party accounts, the designations are revoked. For revocable trusts and wills, the designation of your former spouse and his or her relatives for disposition of property or power of appointment is treated as a disclaimed interest.
But the revocation statutes are tricky and can seem inconsistent. That is the case for both your 401k and your irrevocable trust, but for different reasons. If you designated your spouse as the beneficiary under your 401k, then the designation is not revoked by a divorce. That is because federal law, not state law, controls a 401k. If you designated your spouse as a beneficiary under an irrevocable trust, then the divorce does not automatically revoke that designation. That is because the trust is irrevocable.
Revocation of Agent Designations
Nor do the automatic revocations, when they apply, stop at beneficiary designation. They can also include agents and other fiduciaries. The designation of a spouse as your agent under your will, statutory durable power of attorney, medical power of attorney and designation of guardian is automatically revoked upon a final divorce. The law goes even further regarding for revocable trust. Not only is your spouse kicked out as an agent, his or her relatives are kicked out, too.
Note that these revocations apply only when the divorce is final, or the marriage is otherwise dissolved. The mere filing of a divorce is not enough to trigger the automatic revocation.
How to Stop the Revocation of Designations
That is all fine, but what if you and your spouse do not want the automatic revocation to take place? Is there anything that can be done to stop it?
The short answer is yes. There are 2 ways to accomplish it. The first is to have the divorce decree or other court order specifically state that a particular designation remains in place. The second is for you and your spouse to agree, by contract, to keep a designation in place.
What if you don’t have a court order or a contract and you still want to name your former spouse as a beneficiary or an agent? You can do it, but it will take some work. The new documents must be executed and dated after the date of the final divorce decree. For life insurance, multi-party accounts and an IRA, you will need to sign a new beneficiary designation. For your will, powers of attorney and designation of guardian, you should execute a new document. For your revocable trust, you should execute a restatement or amendment.
Divorce is the end for a lot of things. For your agent and beneficiary designations, divorce is just the beginning.
Virginia Hammerle is president of Hammerle Finley Law Firm. She is an Accredited Estate Planner, has been Board Certified in Civil Trial Law for 25 years, and recognized as a Super Lawyer for the past 10 years. She blogs regularly on senior issues and the law and has a monthly newsletter. Contact at firstname.lastname@example.org.