If you have recently filed for divorce you will likely consider changing your estate plan during the process. The New York Estates, Powers, and Trusts Law 5-1.4 addresses the effect of divorce, separation, or judicial annulment on estate planning documents such as wills.
If certain steps are not taken, your divorce could have an unexpected and negative impact on how your assets are distributed upon your death. Therefore, when dealing with these matters, it can be beneficial to retain the services of an experienced New York estate planning attorney for guidance.
Attorney Norma E. Ortiz leads a team of financial professionals at the Ortiz & Ortiz law firm which serves the 5 boroughs of New York. You can get in touch by email, phone or book an online consultation right now.
Estate planning after divorce in New York
For couples dealing with divorce and wills, New York estate law could be a new territory. Just like first-time parents, first-time divorcees are quite often so overwhelmed with the emotional realities and stress that the legal and financial complications may cease to be a priority.
The reality is that there are many parts of a person’s life that require changes to their will in a divorce. Here we might raise some questions you should ask yourself.
- Have I reviewed estate planning documents such as wills or trusts among others?
- Have I reviewed or changed, if necessary, all the beneficiary designations in my insurance policies and retirement accounts such as the IRA, pension, 401K and others?
- Did I appoint short-term and long-term guardians for our children in case I die or become incapacitated? You may need to make changes to this section.
- Did I choose a new person to entrust with the Power of Attorney in my living will?
- Have I named a trustee to make sure that everything I leave is inherited by my children? If you omit this item, it could be received by your ex-spouse and their future spouse and children
New York law regarding estate planning after divorce
Many people don’t realize that New York has a law that automatically revokes gifts or appointments to ex-spouses after a divorce or judicial separation. This judicial separation is defined by law as “a final decree or judgment of separation, recognized as valid under the law of this state, which was rendered against the spouse”.
New York law revokes:
- Disposition by beneficiary designation in a life insurance policy, retirement benefits plan or pension;
- Gifts under a will;
- Powers of appointment or powers to serve in any representative or fiduciary capacity, including as an executor, trustee or personal representative.
Note: This doesn’t mean that the former spouse’s name will automatically disappear from all documents, simply that for purposes of your assets, a former spouse is treated as having preceded you. Also, remember that law does not apply to irrevocable beneficiary designations such as an irrevocable trust in New York state.
Why is it advisable to update your estate plan?
In addition to being the beneficiary to their estate plan a person’s spouse is also often in charge of handling its administration or even being the individual’s health care proxy. There are many cases in which a married couple has an intertwined estate plan. Spouses tend to have jointly-held assets such as joint living trusts or wills.
Spouses usually don’t want this to remain after the marriage is over, therefore, it is key for them to update their estate plan to ensure their former spouse is no longer tied to them in these respects.
You might be interested in reading our dedicated blog about estate planning for unmarried couples.
Estate planning documents to review and update after divorce
When deciding to review estate planning after a divorce these are some of the documents you will likely need to update:
- Life insurance;
- Trust agreements;
- Advance directive;
- Last will and testament;
- Power of attorney.
Inheritance rights in New York
- If there is a will after the death of a person in New York: The surviving spouse is entitled to $50,000 or one third of the inheritance or on the opposite, if there are no children, one half of the inheritance. To obtain the right to this amount all a person will need to do is hire a lawyer to file a claim against the estate with the New York Surrogate’s Court.
- If a person dies without a will in New York:
- If there are no surviving children: The surviving spouse can receive the entire estate.
- With surviving children: The surviving spouse is entitled to the first $50,000 in assets and one-half of the rest of the estate.
Note: In our article dedicated to New York intestacy law we explain the consequences of dying without a valid will in the state of New York.
The following are some of the key areas you need to review so that appropriate action can be taken.
Prenuptial or postnuptial agreement
These types of agreements are one of the best ways to ensure that assets remain yours at the time of divorce. Although these agreements don’t always work, they can often help you protect your assets.
Postnuptial or prenuptial agreements often state that:
- Each spouse has no rights on what the other brings into a marriage;
- Each spouse will be required to give up their rights to any inheritance before or during a marriage.
- At the time your divorce, annulment, or separation is filed, all beneficiary designations made by your former spouse are automatically revoked. Unless the text of the document prohibits this revocation.
- The next named beneficiary would receive the property or money.
Note: On the other hand, if you don’t list “backup” beneficiaries, the assets in question would have to undergo probate or estate administration before being passed on to your heirs. This can cause negative tax consequences.
The effect on wills and advance directives
When the marriage ends, your spouse as beneficiary is also eliminated under your last will and testament and any advance directive arrangements, such as a power of attorney or a health care proxy.
Keep this in mind because unless you designate someone else, no one will be empowered to manage your healthcare and finances if you pass away or become incapacitated.
The Importance of Time in Wills, Divorce, and New York Law
The reality is that the time at which you make these changes influences how much you can make.
Divorce is not something that is always predictable for both parties, so it is easy to understand that you do not have the opportunity to make changes before starting the divorce process.
However, you must act as soon as the divorce is finalized. To do this, you must immediately update your will and other estate plans.
The automatic revocation under EPTL 5-1.4 does not take effect until the divorce is finalized. If you die before this happens, your spouse may still benefit from designations and estates that are currently in effect. Hence the importance of consulting with an expert wills and trusts attorney as soon as the marriage is over.
In a perfect scenario
You would update documents like medical directives and financial power of attorney even before you file for divorce.
The same goes for selecting new beneficiaries for life insurance policies and retirement accounts. Except in those that require the consent of the spouse and where they have no choice but to wait for the divorce to be finalized.
However, life is not perfect and does not always provide the ideal amount of time.
What Happens To Joint Property Upon Divorce?
Many spouses hold major assets like homes jointly and upon divorce, New York law automatically transforms spousal joint tenancy interests into “tenancies in common”. The key difference here is that the latter form of ownership does not imply automatic right of survivorship for the benefit of the other spouse.
Under a tenancy in common, both owners may leave till 50% interest to whomever they wish.
About Your Former Spouse’s Family
Please note that a divorce may automatically disqualify your former spouse as a beneficiary or agent, but it will not automatically disqualify any of their family members.
If you left money or property to your in-laws or named your former brother-in-law as your health care agent, for example, this will continue after the divorce.
If you also want to part ways with them and “divorce” your former in-laws, don’t hesitate to consult with our asset planning attorney.
Does a divorce in NY invalidate a will?
No, a divorce in New York will not invalidate the entire will. Only the provisions in favor of the former spouse will be revoked.
However if your spouse is nominated to serve as a personal representative or if you only have your spouse listed as a beneficiary with no back-up representative appointed, your will could end up not being probated by anyone after your death.
Consequences of not updating your estate plan
Failing to update your estate plan after a divorce can have many unintended consequences. While in New York your ex-spouse is considered to have predeceased you for inheritance purposes upon your death, they may still get benefits if they are directly named as beneficiaries in your retirement account, life insurance, social security benefits and such other financial assets that can have named beneficiaries.
While you may be able to update a lot of these accounts to change the beneficiary on your own, there are many places in your estate plan that will suddenly find themselves blank. If your spouse is your executor, then you should consult with an attorney to have a new executor named in your estate planning documents. Furthermore, while a spouse can have automatic power of attorney and healthcare proxy, making such documents unnecessary for many married couples, recently divorced individuals should consider drafting such documents to have a named representative make legal and medical decisions for you in case of incapacitation. And, of course, if minors are involved it is always good to reassess your estate planning documents after a divorce.
In short, the ultimate goal of updating your estate plan after divorce is to ensure that the responsibilities that had been assigned to the former spouse are reassigned to someone you trust will make decisions according to your current wishes.
Contact our firm
If you or a loved one needs assistance creating an estate plan and wish to speak with an experienced attorney, call our firm. At Ortiz & Ortiz we have been solving financial issues, preparing estate plans, wills and litigating inheritance matters for over 30 years.