Cautionary Tales - Estate Planning After a Divorce - Episode 90
Hey there, Legal Tea Listeners –This is your host, Jenny Rozelle! Today’s episode of Legal Tea is a cautionary tale, where we talk about real-life cases with real-life clients with real facts – they’re things me or my office have worked on. For today’s episode, we’re going to be talking more about a general topic, but talking about the topic and its takeaways by sharing a “cautionary tale” – the topic we’re going to be talking about is estate planning after a divorce. And honestly, things someone, after a divorce, need to think of and proactively do. So, let’s get into it … let’s get into today’s cautionary tale.
To set things up, there are really three people involved – and let’s name them Steve, Barbara, and Heidi. Steve and Barbara were once married, and Heidi is Steve’s daughter. And to clarify and confirm, Heidi is NOT Barbara’s biological child. Now, Steve and Barbara got married several years ago (like in the mid-1990s), and to be honest, Steve and Barbara had a fairly estranged relationship with Heidi – for very personal and very specific reasons. Fast forward to just a few years ago, divorce was filed for and both Steve and Barbara had attorney represent them through the dissolution of their marriage. Part of the process, of course, was coming up with an agreement on how assets and things were divided. Ultimately, that was decided and a Settlement Agreement was signed and filed with the Court.
Now, part of the Settlement Agreement, there was a section called “Waiver of Beneficiary Status, which is going to be really important to remember as we dive into this story. In this Waiver of Beneficiary Status, the provision that they agreed to was as follows:
“Each party waives any beneficiary interest that he or she may have in any life insurance policies, annuities, brokerage accounts, pay-on-death bank accounts, individual retirement accounts, or other instruments containing a beneficiary designation that are now owned by the other party.”
I sure don’t do family law and divorce in my firm, in my practice, but I’m going to assume that this type of provision is in many Settlement Agreements – and if not, it probably should be in the Agreement. (So, if you pursue a divorce, maybe make sure something like this is in your divorce decree!)
Steve and Barbara’s divorce was finalized and everyone, sort of, moved on. Though, Steve and Heidi’s relationship, as father and daughter, remained fairly estranged. As Heidi told me once, “When my Dad kept bringing me nothing but negative, bad things into my life, I had to stop it and separate myself from him.” In my conversations with Heidi, honestly, it didn’t feel like there was a deep hatred or anything – it was simply that Steve made some personal decisions that would consistently and deeply affect Heidi emotionally … .and as she said, she got to a point where she felt like she needed to separate herself from the negativity.
So, about two years after the divorce was final, Steve ended up passing away. He was younger – in his late 50s, if I remember correctly, so it was a dose of unexpected due to his age, but I’d imagine Heidi was not quite surprised given Steve’s choice on how to live his life. That’s about the point that Heidi entered into my world – she reached out to my office to have us help her get through “what happens” after someone passes away. I meet with Heidi and after learning about her and her father’s relationship, I assumed (and confirmed in the meeting) that she really did not have much information yet on Steve’s assets – how they were owned, what beneficiaries were attached, etc. but what we did know for sure is that Steve had a house in his name alone that caused us to have to open up a probate estate.
In this meeting with her, I inquired about a Will – and whether she had any idea if he had an estate plan. She had no idea. She actually lived out of state and said that she’d be in town over the weekend and would look high-and-low for a Will or any estate plan. So, as we were wrapping up the meeting, I told her that even though we didn’t have many answers on his “other” assets yet, we might as well get started on opening probate to get that rocking and rolling. After the meeting, we start working on all the Court paperwork – and eventually, after a few days and when Heidi got into town, she confirmed that so far, there was no Will or anything located. She further shared that his house was a total and complete mess, though, so if she ended up finding anything, she’d let me know.
Fast forward some time, no Will was located. Heidi, in due diligence, even called the attorney that had represented him in the divorce to see if that attorney had done an estate plan for him. Nope. So, we proceeded with filing for an INTESTATE probate case – So, here’s a quick little lesson for you. There’s something called intestate probate and testate probate – intestate means that the person that passed away did not have a Will and testate means that the person that passed away did have a Will. Nonetheless, both intestate and testate estates go through probate. So, here, we filed for opening a probate cause for an intestate estate.
We get the estate rolling and about this time … the estate is opened … Heidi has been in town cleaning out the house, calling financial companies, etc. … and she called my office to relay the news. After talking to two separate financial institutions, one for Steve’s retirement account and one for Steve’s life insurance policy, both institutions confirmed that the listed beneficiary on the asset was Steve’s wife, Barbara. Dun dun dun…
Well, Heidi was a smart cookie and she provided the divorce decree to both financial institutions to basically say, “Look! They waived being each other’s beneficiaries on assets!” The financial institutions basically said, “Sorry – we see that in his divorce decree, but so we don’t get sued by Barbara, we’re going to need a Court Order to tell us to NOT issue these accounts to Barbara.” That’s what prompted Heidi to call me and basically say, “Help me!” Around this time, I’m going to guess that Heidi making these calls to the institutions “triggered” the institution into sending a letter to Barbara to inform her she’s the designated beneficiary. Barbara proceeded to file claims and collect the money from the retirement account and life insurance policy.
That ticked Heidi off to no end. Of course.
You see, I know my wheelhouse – and filing a Complaint against Barbara to seek recovery of her collecting the proceeds is and was not in my skillset. Could I have figured it out? Sure. Would I have been, sort of, stumbling through it? Yes. So, any time I feel that way about something, I bow out – If I can’t do something at 110%, then I should not do it. That’s just how I roll. So, I asked a friend who does estate litigation to assist. I ran the scenario by him and he’s like, “Yep – I know exactly what needs to be done.” See, that’s the confidence Heidi deserved. So, Heidi agreed to get him on board and away they went!
Unfortunately, how many thing in the legal world work, Barbara and Heidi ended up reaching a settlement. At the end, Barbara ended up getting to keep some and Heidi, through the estate, would end up receiving some, too. I think a lot of people would think, “Well there’s that provision in the divorce decree – why doesn’t that just hold up?” I wish I could say, “I agree.” But to enforce that provision would require significant Court involvement and eventually, the legal fees would consume most, if not all, of the money at stake. It’s sort of the sad reality of our current legal system – it often encourages settlement rather than coming to a clean “you win, you lost” sort of scenario. Because getting to the “you win and you lose” conclusion requires so much Court involvement and legal fees, honestly. A perfect counter-argument to the divorce decree provision is … WHAT IF Steve meant to leave Barbara on there? He was estranged from his only daughter, Heidi, and didn’t really have anyone else. Maybe he just thought, “Oh heck with it – let them duke it out later.” We don’t know, and never will know, what Steve’s INTENTION was.
We just have a couple minutes left for this episode, so as you can see, after a divorce, there are some “house-keeping” things one should consider from an estate planning perspective – that I want to talk about as “takeaways” here. First, if you and your spouse get a divorce AND you guys have done an estate plan, somewhat immediately I would consider updating your “basic” documents like Health Care Representative and Directives and Financial/Legal Power of Attorney. That way, if something happens to you in the middle of the divorce proceeding (and trust me, I’ve seen that happen….), then your soon-to-be-ex spouse is not your designated Health Care Decision-Maker and Financial Decision-Maker. That’d be awkward!
Then, after the divorce proceeding, you need to add it to your to-do list to get your Will and/or Trust updated – now that assets have been divided as the decree stipulates. And while you’re in this deep dive in your assets and what happens to them at your passing, be sure to check each-and-every beneficiary designation. Think you’ve updated it? Check again. Just to make sure. Like Steve, here, it seems he left his assets exactly as they were BEFORE the divorce – is that what he wanted? We’ll never know. But regardless, it sure caused a mess given what the divorce decree said and what his daughter, Heidi, tried to push for. I know this season of life may not be the most fun, but add “check/update your estate plan” to your to-do list during/following a divorce, so that when you’re on the other side with all things legal (divorce and estate), you can put this whole topic to rest – and move on with peace of mind.
Alrighty … let’s wrap this episode up and shift to a sneak peak of next week. We are back to the current events/current trends topic – where we talk about something I’ve seen or run across, maybe on the news or social media, that I think would be interesting on here. During next week’s episode, we are going to dive deep about elder law – and while I’ve talked about this very briefly before here on Legal Tea, we’re going to be talking about … what even is Elder Law? And whether you need an Estate Attorney, an Elder Law Attorney, or maybe someone that is skilled in both? I’m going to talk about it under a Current Trends episode because while Elder Law has been around for a bit, I still don’t think people REALLY know what it is – and everyone should. Anyway, we’re going to talk about that next Tuesday, Legal Tea Listeners. So until then, take care and be well!