Most couples leave their property to their spouse, whether outright or in trust, after their deaths. If you divorce your spouse, does your will, for example, automatically revoke itself, or is there something that else that needs to be done? What if you purchase a home in joint tenancy with your spouse and you die after the divorce, but before the property can be sold? Does your interest in the jointly owned property pass to your surviving former spouse?
California's Response to These Issues
In California, the legislature has anticipated such issues and provided a framework for what happens to gifts at death to a former spouse. In most cases, if you clearly did not intend otherwise, the gift to a former spouse will fail, and will instead pass to someone other than your former spouse. What is important to keep in mind, in all respects, is that while a judgment dissolving the marriage revokes an existing will as to the former spouse's rights, separating or filing a divorce petition does not. During the divorce, the parties remain married and have all the benefits provided to a spouse by law in the event of death.
How Divorce Affects Your Will
Unless the will itself expressly provides otherwise, if after executing a will the testator's (the creator of the will) marriage is dissolved or annulled, the dissolution or annulment revokes any gifts to the former spouse and any provisions in the will nominating the former spouse as an executor, trustee, conservator, or guardian. Any gifts passing to the former spouse under the terms of will pass instead to those beneficiaries who are designated to take upon the former spouse's death.
How Death Affects Nonprobate Transfers
A nonprobate transfer to a spouse under an instrument executed before or during the marriage fails if, at the time of death, the marriage was dissolved or annulled. In the case of a nonprobate transfer that fails under this provision, the instrument of transfer is treated as if the former spouse did not survive the transferor. There are some exceptions to this general rule however. If the nonprobate transfer is not subject to revocation at the time of death, or if there is clear and convincing evidence that the decedent intended to preserve the transfer to the former spouse, or if there is a court order in effect at the time of the decedent's death stating that the nonprobate transfer must be maintained for the benefit of the former spouse, the nonprobate transfer to the former spouse will not fail.
What is a Nonprobate Transfer
So what exactly is a nonprobate transfer? A nonprobate transfer is defined by example under California law to mean the property which passes upon the death of an individual under the following instruments: (1) contracts of employment; (2) bonds; (3) mortgages; (4) promissory notes; (5) certificated or uncertificated securities; (6) account agreements; (7) custodial agreements; (8) deposit agreements; (9) compensation plans; (10) pension plans;
(11) individual retirement plans; (12) employee benefit plans; (13) trusts; (14) conveyances;
(15) deeds of trust; (16) marital property agreements; and (17) any other instrument, (other than a will), that operates on death and confers a power of appointment or names a trustee. For purposes of transfers to a former spouse at death, nonprobate transfers do not include life insurance policies or joint tenancy designations. Those instruments are described in more detail below.
How Death Affects Life Insurance Beneficiary Designations
Even if the beneficiary under a life insurance policy is the former spouse of the decedent, California law does not automatically revoke the beneficiary designation upon divorce. It is therefore extremely important for the owner/insured to change the beneficiary designation on their policy if they do not intend their former spouse to receive the insurance proceeds in the event of a death.
Life Ins. Co. of N. Am. v. Ortiz
This could not be more true in light of the recent case of Life Ins. Co. of N. Am. v. Ortiz, 535 F.3d 990 (9th Cir. Cal. 2008). In Ortiz, a police officer designated his first wife as the beneficiary of his life insurance policy. The officer and first wife later divorced. The officer married his second wife and less than one month later died while on duty. The officer never changed the beneficiary designation on his life insurance policy. Litigation between the first and second wife ensued over who should receive the life insurance proceeds. The 9th Circuit Court of Appeal found that the first wife, as the designated beneficiary, inherited 94.55% of the life insurance and the second wife inherited 6.45% of the life insurance proceeds. The 6.45% represented the second wife's one-half interest in the four days' earnings that funded the final thirty-one day term of the term life insurance.
How Death Affects Joint Tenancy
Joint tenancy is the most commonly used form of co-ownership. When one joint tenant dies, his or her interest in the jointly owned property passes to the surviving tenant (or tenants) by operation of law and no probate is necessary. A joint tenancy created between a decedent and the decedent's former spouse is severed as to the decedent's interest if it was created before or during marriage and, at the time of death, the former spouse is not the decedent's surviving spouse, due to annulment or dissolution of marriage. A joint tenancy is not severed, however, if it is not subject to severance by the decedent at the time of his or her death or if there is clear and convincing evidence that the decedent intended to preserve the joint tenancy in favor of the former spouse.
How Death Affects Qualified Pension Plans and Other Federal Benefits
Although California law includes pension and employee benefit plans in its definition of "nonprobate transfers" to former spouses that will fail, it will not apply to pension, profit-sharing, or retirement plans subject to the Employee Retirement Income Security Act of 1974 (ERISA) (29 USC ? ?1001-1461). With respect to qualified pension plans subject to ERISA, California law that directs revocation of the beneficiary designation is preempted by ERISA. In other words, ERISA requires that any qualified plan benefits be paid to the party designated in writing on the plan's designated beneficiary form regardless of whether the party is a former spouse. Egelhoff v. Egelhoff (2001) 532 US 141.
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