Til Death (or Divorce) Do Us Part
The Family Law Attorney Meets Estate Planning
Divorce lawyers must have intimate knowledge of the statutes and cases governing our practice area, and there are a lot of them. Family law attorneys must also be well schooled in many other areas of the law because of the diversity of issues covered in a divorce case. The practice extends well beyond family. One area in which we require a more advanced knowledge base is estate planning. Family law attorneys likely agree that their clients should review their plans following a divorce. However, it is equally important to do so if contemplating or in the process of a divorce.
In the estate planning arena, property rights are created in the common law. These rights vest complete control in the owner of property to dispose or transfer any rights in their property, even if the transfer is intended to reduce or eliminate their spouse’s interest. Once a divorce is filed, the common law rights estate planners are familiar with are altered. A new statutory creature is created known as marital property and a divorce court can ignore the common law rights granting property owners the discretion to control their own assets.
Estate planning attorneys use various tools to accomplish their clients’ wishes concerning their property. Three common instruments used are: wills; trusts; and power of attorneys for health care and property. Upon marriage, the terms of a will are not automatically changed. If one wants to make their new spouse a beneficiary under their will, affirmative steps to amend the will or create a new one are required. However, the terms of a will concerning an ex-spouse are automatically negated, by operation of law, when one becomes divorced or their marriage is annulled. As a result, an ex spouse is essentially disinherited under ones will. Interestingly, the same is not true if a decedent is legally separated. See the Probate Act (755 ILCS 5/4 7).
If a divorced person wants to, or is obligated under a Judgment for Dissolution of Marriage, to name his/her ex-spouse as a legatee, action is required to reaffirm or re-execute the will. This is the case even if the beneficiary/ex-spouse was designated as a beneficiary prior to the parties’ marriage. 
Like wills, revocable trust provisions concerning a spouse who becomes a former spouse due to divorce or annulment, are rendered null and void. Also, just like the section of the Probate Act dealing with the revocation of wills, legal separations are not mentioned and do not affect trust provisions. See the Trusts and Dissolutions of Marriage Act, 760 ILCS 35/0.01 This Act applies only to instruments where the provision is revocable by the settler and therefore it is not applicable to irrevocable trusts or testamentary trusts. Since the terms of an irrevocable trust cannot be modified it is important when drafting one, that its own terms provide for termination of an ex spouse’s right to be a beneficiary or fiduciary.
As does the Probate Act and the Trusts and Dissolutions of Marriage Act, the Illinois Power of Attorney Act includes provisions to deal with situations of domestic discord. However, under the Probate Act and the Trusts and Dissolutions of Marriage Act the triggering event is divorce or annulment, whereas the Power of Attorney Act covers divorce and legal separation, but not an annulment. See the Illinois Power of Attorney Act, 755 ILCS 45/2-6.
Because of the existence of these statutes, divorced individuals do not necessarily need to rush to modify their existing estate plans after divorce. However, it is wise to review them for various reasons including but not limited to:
- Verify that successor executors and successor trustees are named and that they remain willing and qualified to act;
- If a former spouse was a beneficiary under the will or trust, determine whether a contingent beneficiary is named and if the contingent beneficiary is one the client still cares to have property pass to;
- Verify that these “operation of law” statutes do not contradict obligations imposed by a Judgment for Dissolution of Marriage.
When is it proper for our clients to review their estate plans? Is it acceptable to wait until the divorce is completed? Actually, it is prudent for clients to review their estate plans if they are contemplating or in the process of divorce. The above statutes help only if a judgment is entered. If one dies while their case is pending, the divorce action abates. The estranged surviving spouse will retain all of the rights of a dutiful and loving spouse, including the right to be a beneficiary or fiduciary under wills and trust. That is likely not the result the decedent envisioned.
Estate planners help clients not only with death, but disability as well. The Power of Attorney Act too is only helpful once a judgment is entered. What happens if during good times one names their spouse under a power of attorney for property and/or health care to act on their behalf if they become disabled and at the time of disability the principal spouse and agent spouse are in the middle of a divorce? Since the parties are not yet divorced, the agent spouse’s authority to act remains intact. However, the right of others to seek a guardianship for the disabled spouse exists and if established may defeat the agent’s powers under a power of attorney. Although not common, one should know that a guardian can prosecute a ward’s divorce case if the ward started the case before being adjudicated incompetent. However, a guardian cannot initiate the case.
Not having a power of attorney for health care is another problem for someone thinking about or in the process of divorce. Absent the appointment of a health care agent, a spouse, even an estranged one, has authority to make decisions on behalf of an incapacitated spouse. See the Illinois Health Care Surrogate Act. Further, a spouse has rights superior to others, unless otherwise provided for, to make decisions about the disposition of their deceased spouse’s remains, including cremation under the Disposition of Remains Act.
Another disconnect between estate planning and family law arises with life insurance. Many Marital Settlement Agreements (“MSA”) obligate a party to maintain life insurance on his or her life and to designate a named beneficiary. When a life insurance policy names a designated beneficiary, it controls over whatever a will, trust, or intestacy laws provide. There are many cases dealing with the issue of what happens when a divorced individual fails to remove an ex-spouse as the beneficiary of a life insurance policy. The previously mentioned statutes are not applicable and common law controls. The common law has created a general rule. The rule provides that where an ex- spouse is the designated beneficiary of an insurance policy before divorce, and subsequent to the divorce the insured fails to eliminate the ex-spouse as a beneficiary, the ex-spouse is not barred from collecting the insurance proceeds upon the death of the insured. 
However, virtually every MSA contains a general release stating the ex-spouse waives any interest in all properties of the other. Does the general release protect the client who forgot to remove his ex-wife as the beneficiary of his life insurance policy and to designate his new wife as the beneficiary? Unfortunately no; a general release is insufficient under these circumstances. In order for a release to be effective for life insurance, the release must be specific, straightforward, and expressly reference life insurance.
Matters become more confusing and difficult when we throw a kid and an ex wife into the mix. In these cases, where one party fails to change the beneficiary designation after divorce, case law is filled with battles between the deceased spouse’s estate, the surviving ex-spouse, the kids, and a new wife. An exception to the general rule may apply. Where a divorce judgment requires an insured to maintain life insurance for the benefit of a particular beneficiary, that beneficiary has an enforceable equitable right to the proceeds of the insurance policy against any other named beneficiary, except the one with a superior equitable right. In such cases, the ancient maxim followed by courts of chancery that “equity regards as done that which ought to be done” is followed.
Unfortunately, the battles do not end with the courts applying either the general rule or its exception. Issues arising over who and to how much one is entitled to the proceeds of an insurance policy include litigation about: natural increases in the value of life insurance benefits; the purchase of additional insurance; the requirement to maintain insurance without specification of the amount of insurance; and many other permutations of the these situations. An analysis of these cases is beyond the scope of this article.
Matrimonial attorneys are aware that marriages often break down or are in process of breaking down years before a divorce action is filed. Once a divorce case is filed, it may take years before the case is finalized. In order to protect divorce clients from the problems referred to in this article, action may be required by an estate planning attorney before the divorce is started or finalized. Of course, before taking action one must determine if it is appropriate under the circumstances or in violation of any court orders prohibiting the action. In closing, some steps to consider:
- Create a new will and/or trust that does not name the spouse as a beneficiary or fiduciary;If there is no will, create a will and/or trust naming the children (or someone else if no children) as beneficiaries in order to avoid intestacy laws awarding the estate, in whole or in part, to the estranged spouse;Transfer property into a trust. Although this will not prevent the divorce court from treating the transferred property as “marital property” upon finalization of the divorce, it will protect the property from going into the deceased spouse’s estate, and from the estranged spouse’s right to renounce a will, if death occurs before then;If the client has a Power of Attorney naming the spouse as agent, consider name a new agent;If the client does not have a Power of Attorney for Health Care, create one naming someone else as the agent to avoid the estranged spouse from being able to make health care decisions under the Illinois Healthcare Surrogate Act;Consider severing joint tenancies; and
- Change beneficiaries of life insurance policies.
Chicago lawyer Michael C. Craven represents clients in all areas of family law including divorce, property division, custody, child support, paternity, domestic violence, and the preparation of prenuptial and postnuptial agreements. He draws on his previous experience as a tax attorney to negotiate and litigate complex financial issues in matrimonial cases. He can be reached at (312) 621-9700 or via email at [email protected]. View his Divorce Magazine online profile.