Why Estate Planning Is So Important After Divorce & Other Life Events
Wills & Beneficiary DesignationsKeeping your will and beneficiary designations clear and up-to-date helps facilitate the estate administration process. Otherwise, your estate representative and surviving family members might become tangled in litigation. A 2017 decision by the U.S. District Court for the District of Columbia demonstrates this principal. It involves the estate of the late John McLaughlin, best known for moderating The McLaughlin Group for over thirty years. In 1996, McLaughlin designated Christina Vidal as the beneficiary of two life insurance and annuity contracts, one from Hartford and one from Allianz. McLaughlin and Vidal executed a prenuptial agreement in 1997, shortly before they were married. This agreement provided that, in the event of divorce, all property rights arising out of their marriage would be settled by a lump sum payment of $1 million to Vidal. When they divorced in 2010, the prenuptial agreement was incorporated into the divorce judgment and McLaughlin made the required payment. However, McLaughlin did not remove Vidal as the beneficiary under the annuity contracts. After his death in 2016, Elizabeth McLaughlin, his niece and the administrator of his estate, filed suit seeking a declaration that the estate is the proper beneficiary of these two contracts rather than Vidal.
Effect of Divorce on Beneficiary DesignationsThe District of Columbia recognizes the “’doctrine of implied revocation‘, which provides that a divorce and division of property generally revokes a former spouse’s status as beneficiary of a will.” Like many states, however, the District of Columbia does not extend this doctrine beyond wills to contract-based beneficiary designations such as the ones at issue in McLaughlin’s case. District of Columbia courts have long held that “a separation and property agreement does not divest a former spouse of her interest as a designated beneficiary absent ‘convincing evidence’ that it was intended to deprive the named beneficiary of that interest”. This legal standard for determining whether an ex-spouse remains a beneficiary after divorce sets a high bar for the party opposing the beneficiary designation. In other words, an ex-spouse’s status as beneficiary is not automatically terminated due to a divorce. In McLaughlin and Vidal’s prenuptial agreement, both parties expressly waived any right to receive benefits from any annuity. They further specified that existing beneficiary designations for a Legg Mason IRA shall survive the prenuptial agreement. Taken together, these provisions establish that the parties clearly intended for the divorce and prenuptial agreement to extinguish Vidal’s rights with respect to the Hartford and Allianz annuities. If the parties had intended to make exceptions for these two plans, they would have done so along with the exception for the Legg Mason IRA. In McLaughlin’s case, the parties’ intent to terminate Vidal’s interest in the annuities was clear and convincing. Accordingly, the Court ruled that McLaughlin’s estate was indeed the proper beneficiary. Had the prenuptial agreement between Vidal and McLaughlin been less specific, the case would have likely had a different outcome. As the court emphasized, boilerplate or general language waiving interest in property is “insufficient to show such intent.”
Keeping Your Estate Plan Current
Courts are generally hesitant to override contract provisions, unless contrary intent is made absolutely clear. When there is no language explicitly settling all property matters and intending to deprive the named beneficiary of their interest in a divorce judgment or prenuptial agreement, an ex-spouse will likely remain the beneficiary. By keeping all of your beneficiary designations current, your family, your estate representative, and the administrators of any trusts you have created, will not need the court’s assistance in declaring your intent.To ensure your estate plan accurately reflects your wishes, it should be reviewed and updated at least every 5-10 years, but especially as you experience major life events. To make changes to your will, your entire will does not necessarily need to be redone. You may be able to make the changes you need through a codicil, which is an amendment to a will.