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.