Effect of Divorce on Estate Plan (Arizona)
1. What happens to a Will upon divorce?
In the event of divorce, under Arizona law, a divorced person’s Will remains valid, but the ex-spouse is removed as an eligible beneficiary of the estate. However, a decree of separation does not terminate the marriage (unless it clearly states otherwise) and therefore does not disqualify the spouse as a beneficiary. In other words, if a couple is separated, but not yet divorced, the will remains valid as if there was no separation.
Provided a final divorce decree has been issued, the ex-spouse is disqualified from any fiduciary position named in the Will such as personal representative (executor), guardian, or trustee. However, a new Will can be signed to add the ex-spouse back in.
2. What happens to a Living Trust upon divorce?
In the event of divorce, Arizona law treats a living trust similar to a Will.
For joint revocable living trusts, each spouse will be treated as having predeceased the other. If one or both spouses would die before the trust is dissolved as part of the divorce settlement, each spouse’s share of the trust (1/2 of community property plus any separate property) would be distributed to the beneficiaries as if there was no surviving spouse.
For separate property trusts, the ex-spouse is disqualified as a potential beneficiary of the trust. The ex-spouse would also be removed as a potential successor trustee. If the trustor wants to keep the ex-spouse as a potential beneficiary and/or successor trustee, then the trustor must sign an amendment or restatement of the trust to verify this intent.
3. Are powers of attorney automatically revoked upon divorce?
Upon divorce, each spouse becomes ineligible to serve as agent for the other spouse's financial or health care power of attorney. The power of attorney remains valid, however, if an alternate agent is willing to serve. If a spouse still wants to name his or her ex-spouse as an agent, a new power of attorney must be signed.
4. What if a divorced person fails to remove the ex-spouse as beneficiary of an IRA?
A.R.S. Section 14-2804(A) disqualifies an ex-spouse as beneficiary of an IRA, but this situation can get messy. The IRA custodian will likely treat the ex-spouse as beneficiary if the custodian has no knowledge of the divorce. Even if the custodian intends to follow Arizona law and disqualify the ex-spouse, there is precedent for an ex-spouse to contest the matter in court. After all, there is an argument that the IRA owner intended to keep the ex-spouse as beneficiary even though they were divorced, especially if there is a long period of time between the divorce and the IRA owner’s death.
5. What about pension, 401(k), Profit Sharing, and other ERISA plans?
ERISA refers to the federal law governing federal retirement plan accounts. A.R.S. Section 14-2804 does not apply to ERISA plans such as pension, 401(k), profit sharing, and other federal retirement plans. Thus, the beneficiary designation on-file with the plan administrator controls. The US Supreme Court has ruled that plan administrators may rely solely on the beneficiary designations. Thus, an ex-spouse remains as beneficiary of one of these plans until the plan participant submits a new beneficiary designation.
6. Is an ex-spouse automatically disqualified as beneficiary of life insurance in Arizona?
Yes. However, a divorced person may want to – or in some cases be required to – name an ex-spouse as beneficiary of a life insurance policy. This requires submitting a new beneficiary designation to the insurance company. Otherwise, Arizona law will automatically remove the ex-spouse as an eligible beneficiary.
7. What about Pay-on-Death, Transfer-on-Death and ITF designations?
An ex-spouse is automatically removed as an eligible beneficiary of an account with a pay-on-death (“POD”), transfer-on-death (“TOD”), or in-trust-for (“ITF”) designation. However, these types of accounts should be updated quickly to prevent unauthorized collection by an ex-spouse upon death of the account owner. The financial institution might distribute the funds without verifying marital status.
8. What happens to property a divorced couple owns as Joint Tenancy with Right of Survivorship?
In the event of divorce, any property held as joint tenants with right of survivorship or community property with right of survivorship automatically converts to tenancy-in-common. This means that the property will no longer go automatically to the survivor. Rather the deceased person’s interest in the property will be subject to probate.
About the Author
Thomas J. Bouman provides legal counsel in the areas of estate planning, estate settlement, and asset protection. He brings a highly systematic approach to the practice of law, which is critically important when wading through the complex, and often bizarre, legal requirements associated with estate and trust law. Mr. Bouman is author of the Arizona Estate Administration Answer Book and a prominent member of Wealth Counsel, LLC, the nation’s premiere organization of estate planning attorneys.
In the event of divorce, under Arizona law, a divorced person’s Will remains valid, but the ex-spouse is removed as an eligible beneficiary of the estate. However, a decree of separation does not terminate the marriage (unless it clearly states otherwise) and therefore does not disqualify the spouse as a beneficiary. In other words, if a couple is separated, but not yet divorced, the will remains valid as if there was no separation.
Provided a final divorce decree has been issued, the ex-spouse is disqualified from any fiduciary position named in the Will such as personal representative (executor), guardian, or trustee. However, a new Will can be signed to add the ex-spouse back in.
2. What happens to a Living Trust upon divorce?
In the event of divorce, Arizona law treats a living trust similar to a Will.
For joint revocable living trusts, each spouse will be treated as having predeceased the other. If one or both spouses would die before the trust is dissolved as part of the divorce settlement, each spouse’s share of the trust (1/2 of community property plus any separate property) would be distributed to the beneficiaries as if there was no surviving spouse.
For separate property trusts, the ex-spouse is disqualified as a potential beneficiary of the trust. The ex-spouse would also be removed as a potential successor trustee. If the trustor wants to keep the ex-spouse as a potential beneficiary and/or successor trustee, then the trustor must sign an amendment or restatement of the trust to verify this intent.
3. Are powers of attorney automatically revoked upon divorce?
Upon divorce, each spouse becomes ineligible to serve as agent for the other spouse's financial or health care power of attorney. The power of attorney remains valid, however, if an alternate agent is willing to serve. If a spouse still wants to name his or her ex-spouse as an agent, a new power of attorney must be signed.
4. What if a divorced person fails to remove the ex-spouse as beneficiary of an IRA?
A.R.S. Section 14-2804(A) disqualifies an ex-spouse as beneficiary of an IRA, but this situation can get messy. The IRA custodian will likely treat the ex-spouse as beneficiary if the custodian has no knowledge of the divorce. Even if the custodian intends to follow Arizona law and disqualify the ex-spouse, there is precedent for an ex-spouse to contest the matter in court. After all, there is an argument that the IRA owner intended to keep the ex-spouse as beneficiary even though they were divorced, especially if there is a long period of time between the divorce and the IRA owner’s death.
5. What about pension, 401(k), Profit Sharing, and other ERISA plans?
ERISA refers to the federal law governing federal retirement plan accounts. A.R.S. Section 14-2804 does not apply to ERISA plans such as pension, 401(k), profit sharing, and other federal retirement plans. Thus, the beneficiary designation on-file with the plan administrator controls. The US Supreme Court has ruled that plan administrators may rely solely on the beneficiary designations. Thus, an ex-spouse remains as beneficiary of one of these plans until the plan participant submits a new beneficiary designation.
6. Is an ex-spouse automatically disqualified as beneficiary of life insurance in Arizona?
Yes. However, a divorced person may want to – or in some cases be required to – name an ex-spouse as beneficiary of a life insurance policy. This requires submitting a new beneficiary designation to the insurance company. Otherwise, Arizona law will automatically remove the ex-spouse as an eligible beneficiary.
7. What about Pay-on-Death, Transfer-on-Death and ITF designations?
An ex-spouse is automatically removed as an eligible beneficiary of an account with a pay-on-death (“POD”), transfer-on-death (“TOD”), or in-trust-for (“ITF”) designation. However, these types of accounts should be updated quickly to prevent unauthorized collection by an ex-spouse upon death of the account owner. The financial institution might distribute the funds without verifying marital status.
8. What happens to property a divorced couple owns as Joint Tenancy with Right of Survivorship?
In the event of divorce, any property held as joint tenants with right of survivorship or community property with right of survivorship automatically converts to tenancy-in-common. This means that the property will no longer go automatically to the survivor. Rather the deceased person’s interest in the property will be subject to probate.
About the Author
Thomas J. Bouman provides legal counsel in the areas of estate planning, estate settlement, and asset protection. He brings a highly systematic approach to the practice of law, which is critically important when wading through the complex, and often bizarre, legal requirements associated with estate and trust law. Mr. Bouman is author of the Arizona Estate Administration Answer Book and a prominent member of Wealth Counsel, LLC, the nation’s premiere organization of estate planning attorneys.