Congratulations: your divorce or dissolution is final. After months of negotiating back and forth over details large and small, you can finally put the legal documents aside and look toward the future. Well, you can as soon as you are done updating your estate plan and changing beneficiaries on trusts, retirement plans, insurance, investments and other accounts.
That’s right: having your divorce or dissolution finalized doesn’t mean you are done with paperwork quite yet. Now that you are no longer legally married to your former spouse, you need to disentangle him or her from your estate plan and financial affairs as well. In this blog post, we will discuss what is needed to change beneficiaries so that your assets go to the people you intend to receive them.
Do You Have to Change Beneficiaries After an Ohio Dissolution Divorce?
There is some good news. In Ohio, a former spouse named as “spouse” a beneficiary in a will or trust is treated as if he/she died before the maker of the will or trust, meaning that person does not inherit. Also under Ohio law, termination of a marriage revokes beneficiary designations on a life insurance policy, an annuity, a payable on death account, an individual retirement plan, an employer death benefit plan, or other rights to death benefits arising under a contract. These rules do not apply to federal benefits, such as TSP, FERS or CSRS.
What that means is that if, for instance, you forgot to change your designation on your life insurance policy, your ex-spouse is not legally entitled to the death benefit. Prior to the enactment of laws in Ohio and other states, a named beneficiary on a contract was entitled to receive the benefits, regardless of their relationship with the deceased.
That sometimes led to unjust outcomes in which estranged ex-spouses received a windfall of assets just because the deceased forgot to change the designation. Imagine being married to someone for 20 years, believing that you were the beneficiary on their life insurance policy, only for the benefits to go to someone they had divorced years before you even met!
Current law avoids such scenarios and does what most recently-divorced people would do if they thought about it: revoke the designation, treating the beneficiary ex-spouse as if he/she predeceased the owner of the contract or asset or the maker of the will. These rules apply (unless the beneficiary is designated by name (rather than by terms such as “spouse”, Husband”, or “Wife”) designation or the court order terminating the marriage provides otherwise).
However, if you think that means you don’t need to worry about updating your estate plan or changing beneficiaries, think again.
Estate Planning After Divorce and Dissolution
Although Ohio law tries to protect divorced residents from unintended outcomes, it is still best to make a new estate plan and update beneficiary designations so that there is no doubt about your intentions. Under ORC Section 5815.33(C), a person or entity such as a life insurance company or repository of IRA funds is not liable for distributing assets according to a beneficiary designation if the distribution is otherwise reasonable and the person did not have notice of the facts that led to the revocation of a beneficiary designation.
In other words, if you had a life insurance policy that named your ex-spouse as the beneficiary, and he/she claimed the benefit after your death because the insurer did not know that you were divorced, your estate would have no recourse against the insurance company. Your personal representative could take action against your former spouse, but lawsuits are time-consuming, costly, and stressful. It is much simpler to update your estate plan and beneficiary designations on other assets as soon as possible after termination of marriage
Can You Update Your Estate Plan Before or During Divorce?
In some cases, it may make sense to update your estate plan even before filing for divorce if possible. Filing for divorce terminates the appointment of an agent under a power of attorney, but under ORC Section 2107.33(B), other components of your estate plan remain in effect until your divorce is final or until you have a separation agreement. That means that if you were to die a month after filing for divorce, your estranged spouse (who is still legally your spouse) could inherit from you.
It is difficult to change your estate plan while a divorce is pending, because when you file for divorce, the court enters a mutual restraining order designed to keep either spouse from giving away or transferring assets. If you are in the midst of a divorce, speak with your family law attorney about the possibility of creating a separation agreement that dictates what will happen to your assets should either of you pass away while the divorce is pending. Your attorney will advise you about whether a separation agreement makes sense for you.
Divorce is a difficult life event, and like other major life events, it should cause you to review and reconsider your estate plan. Your divorce attorney can help you identify steps you should take to protect your assets and your family, so that you can move forward into the next chapter of your life with peace of mind. If you have questions about estate planning or beneficiary designations and divorce, please contact Melissa Graham-Hurd and Associates to schedule a consultation.