Hunt & Associates P.C.

Is a Divorce Judgment the Final Step in a Divorce?

At the conclusion of a divorce the last person that you want to talk with is an attorney to discuss your estate planning.  However, such a discussion is necessary to avoid unintended consequences and expensive litigation in the event you pass away.

Once you and your ex-spouse have signed the divorce judgment and it’s been entered by the court, you’ve spent significant amounts of money on attorney fees and court costs such that you want the “bleeding” to stop.  You are ready to move on and discussing your estate planning is the furthest thing from your mind – something that you can put off until later.

However, the final process in completing a divorce is not the entry of the judgment dissolving your marriage, it is changing your will, power of attorney, advance health care directive and beneficiary designations on life insurance policies and retirement accounts.   Updating your estate planning at the end of the divorce process is a relatively inexpensive process that can help you ensure that your ex-spouse does not receive a portion of your estate or have the ability to manage your estate’s finances.

In Oregon, any will executed prior to the entry of a divorce judgment becomes void after entry of the judgment unless the will expressly provides otherwise.  If you haven’t executed a new will then your property passes to your children, or, if you don’t have children, to your heirs.  Consequently, people think that they do not have to change their will since the ex-spouse is no longer entitled to receive any portion of their estate.  This thought couldn’t be further from reality.

As an example, 6 months following your divorce you pass away in an auto accident.  The primary reason that you divorced your ex-spouse is that you believed that he was terrible with managing money. You have two minor children that are now in his exclusive custody.  You didn’t change your will following your divorce, so your previous will that left your entire estate to your ex-spouse is void.  Consequently, your probate estate will pass to your children, in equal shares.

However, since they are minors, a conservatorship will need to be established to manage the funds left to them through probate until they turn 18.   Most likely your ex-spouse will petition the court and be appointed as conservator of the funds that your children are entitled to receive.  If your ex-spouse has issues managing finances, this is not a desired result and one that could have been avoided by executing a new will.

Conservatorships are expensive court processes that will be paid for using your estate’s assets.  Although the court supervises your ex-spouse’s use of the conservatorship funds, there is no guarantee that your ex-spouse would not misappropriate those funds.  Additionally, when your children turn 18, they would receive all of the funds in the conservatorship which could be significant.

If a client has minor children, an attorney will most likely include a conservator designation and a trust for minors in the will to avoid the above results.  The designated conservator designated in your will could be a family member or a trusted friend, but probably wouldn’t be your ex-spouse.  In most circumstances the court would appoint the designated conservator to manage your children’s finances until they turned 18 years old.

In addition to the conservator designation, most attorneys include a trust for minors in your will which designates a trustee, dictates how the trust funds can be used, and states when the trust assets can be distributed to your children.  Assuming all of your estate assets and any non-probate assets such as life insurance proceeds are included in the trust, a conservatorship is unnecessary.  Drafting such a will and fees associated with administering the trust are significantly less than fees associated with commencing a conservatorship and administering the conservatorship.

Although entry of the divorce judgment by the court revokes your existing will, it doesn’t necessarily revoke your other estate planning documents such as a power of attorney or advance health care directive unless such a revocation is explicitly stated in the divorce judgment. Consequently, if you named your ex-spouse as your agent/attorney-in-fact in a power of attorney, your ex-spouse can still act as your agent/attorney-in-fact until the power of attorney is revoked.  Until the power of attorney is revoked, your ex-spouse would have the ability to access financial accounts and other records by using a copy of the power of attorney.

Similarly, entry of the divorce judgment does not necessarily revoke beneficiary designations on life insurance policies and retirement accounts.  Such a revocation must be expressly stated in the divorce judgment.  If the beneficiary designations on life insurance policies are not revoked in the divorce judgment then your ex-spouse may be entitled to receive the insurance proceeds if the designation was not changed from your spouse.

Even if the designation was revoked by the divorce judgment you still need to update the beneficiary designation so that your children do not receive the proceeds outright until an age that you deem appropriate and to avoid having to place the insurance proceeds in a conservatorship.  If you have executed a new will with a trust for minors, any proceeds could be placed into that trust with the proper beneficiary designation.

By taking the extra step of updating your existing estate planning documents and ensuring that you have properly changed the beneficiary designations on your life insurance (and retirement accounts) you can avoid the unintended consequences and costs associated with failing to take this relatively inexpensive step.  An attorney can draft your estate planning documents and coordinate with other professionals to ensure that your beneficiary designations in life insurance policies and retirement accounts are properly drafted to meet your new estate planning goals.

©05/17/2011 Kevin J. Tillson of Hunt & Associates, P.C.  All rights reserved.

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3 Responses to Is a Divorce Judgment the Final Step in a Divorce?

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