Divorce Need Not Ignite Estate Litigation, But Too Often It Does
By Amy L. Gostanian and Carl Jones
Certain life events demand that estate planners work with client testators to adjust their estate plans. Divorce and remarriage are at the top of that list. When matrimony devolves into acrimony – setting the stage for expensive and counterproductive “scorched earth” litigation – everyone loses.
We strive here to give estate planners a look into what can spark expensive and protracted litigation, and how to avoid it. We offer background on relevant legal concepts, including revocation upon divorce, joint tenancy, ademption and abatement, and estate modification. Careful attention to these concepts and vigilance when a client’s circumstances change can save enormous headaches for estate lawyers and their clients down the line.
First, we urge planners to read “When Death and Divorce Collide” by Charles M. Riffle, Kathleen A. Durrans, and Melissa R. Karlsten (the “Death and Divorce authors”). Though published in 2005, the value of their analysis and insights endures. The authors explain – in the context of dividing assets – the tension between family court and probate court in California. The two court systems can differ substantively in how they answer important questions like these:
- When a spouse dies before a couple’s divorce is final, how is joint tenancy of real or personal property allocated?
- What are the reimbursement rights of a spouse who contributed property to acquire joint property during the marriage?
- How are pensions, profit sharing, or retirement plans distributed to either the surviving spouse or the heirs of the deceased spouse?
California courts once applied community property laws consistently in both family court and probate court because these separate judicial systems looked to each other for precedent. But legislative changes and decisions from courts all the way up to the nation’s highest, wrote the authors, “[C]aused a divergence of results depending on whether a family court or probate court decides an issue.”
“Attorneys who can spot the key issues that a family court and probate court will decide differently can develop a litigation strategy that will achieve maximum return for the client,” the authors wrote.
Takeaway
Not knowing the key differences between how family court and probate judges will come down on important issues can lead to problems or, as the authors of Death and Divorce wrote, “nasty surprises.” We second that warning and urge estate planners to be vigilant in monitoring their clients’ paths in life in order to make adjustments that will help avoid litigation.
Revocation Upon Divorce
As most of us know, parties in a divorce are obligated to fulfill the terms of their divorce agreement or judgment. A one-time couple has to execute the deeds that confirm assets to the right parties. These ex-spouses must also change their beneficiary designations.
Scenario
A husband had a bank account and named his new wife the beneficiary. After three years they had twins. After ten years they divorced. During the course of the divorce proceedings the husband died. Unfortunately, he had not completed a new beneficiary form once the divorce was final. The account balance was considerable and represented a substantial portion of the man’s estate.
In that scenario does the estate get the assets? Maybe, but what if the wife says there was a reason the husband left her designated as beneficiary? It’s certainly plausible, but who decides? This lack of clarity and specificity invites conflict.
The concept of “revocation upon divorce” automatically removes a former spouse as a beneficiary of a will, trust, or other estate document when a divorce is final. If you die and still have joint tenancy, but your divorce settlement assigns property to your now-deceased ex-spouse, then you, as the surviving ex-spouse, have to go to court to argue for the property.
The doctrine applies to other types of assets, as well. If someone names their spouse as a beneficiary on their life insurance policy or retirement plan, and they subsequently divorce, the ex-spouse will no longer be eligible to inherit the assets unless the testator specifically designates the ex-spouse as beneficiary after the divorce.
The purpose of revocation upon divorce is to prevent unintended consequences and ensure that your assets are distributed according to your wishes after a breakup. Be aware, though, that this provision may not apply in all jurisdictions and state laws vary.
California Probate Code Section 5302 deals with multiple-party accounts, such as joint bank accounts or joint tenancy property. Section 5302 outlines the rights and responsibilities of the parties on these accounts, including the rights of surviving joint tenants. Code Section 5604 governs revocable transfer on death deeds. It typically addresses how other non-probate transfers, such as beneficiary designations on life insurance policies or retirement accounts, might interact with a revocable transfer on death deeds. Know that there are situations where other laws might take precedence over a revocable transfer on death deed.
The Death and Divorce authors wrote that while a term life insurance policy may have no value, and therefore cannot be divided, that does not end the question about the beneficiary.
“[A] surviving ex-spouse may have an interest in the proceeds of a term life insurance policy if the term life insurance was purchased with community funds and the insured spouse dies during the term of the policy, even if a judgment of dissolution was entered before the insured’s death and the insured had already changed the beneficiary. In addition,” they wrote, “a surviving former spouse may have a claim to proceeds of a renewed term life insurance policy if the insured former spouse was ‘uninsurable’ after the term expired.”
Takeaway
People die during divorces. People die after divorces. And it sometimes takes litigation – coming to firms like ours – to untangle the knots. Complications occur when a testator does not update or modify their plan.
Are the kids alright?
Paying close attention to life changes and adding clear language to estate plans is especially important when it comes to children. If, for example, a custodial parent gives up certain rights in a divorce in exchange for the non-custodial parent providing funds for the children after the custodial parent dies, that should be explicit in the divorce settlement and estate lawyers must take it into account in assisting clients with their estate plans.
Takeaway
Divorce attorneys and estate attorneys – particularly when the ultimate beneficiaries include children – must pay attention to agreements reached by the parties in light of the inevitability of death on one hand and the possibility of divorce on the other.
Trust Modification
The latest word on the statutory method of revocation as a method of trust modification in California came from the state Supreme Court in February 2024 in Haggerty v. Thornton (2024) 15 Cal.5th 729.
Haggerty held that the statutory method of revocation is available as a method of trust modification – unless the trust expressly limits method of modification. The trust instrument reserves to the settlor the “right by an acknowledged instrument in writing to revoke or amend,” the court held.
Underlying Facts
An amendment to an estate named Brianna Haggerty as a beneficiary, but two subsequent documents excluded her. The final amendment was an executed handwritten amendment with instructions to the settlor’s estate planning attorney to place it with the original trust document. Haggerty argued the only available method of amendment under the trust required notary acknowledgement.
The probate court and appellate court found the final amendment was validly made by the statutory method of modification, and the Supreme Court affirmed.
The final amendment was valid because the settlor complied with the statutory method of signing and delivering the amendment to herself as trustee, the court held. When the trust is silent on the modification method, the statutory method of revocation is available as a method of modification, and the statutory method is available unless the trust explicitly “provides otherwise.” Both methods are available when the trust specifies a method of modification, unless the trust expressly makes the specified method exclusive or expressly precludes application of the statutory method, according to Haggerty.
Takeaway
When modifying an estate, understand the ramifications of choosing, not choosing, or making exclusive or precluding a method of revocation.
Joint Tenancy
Joint tenancy allows two or more people to own property in equal shares so that when one of them dies, the property can pass to the surviving joint tenant(s) without having to go through probate court. Also, the property is included in the taxable estate of the deceased party. If a surviving tenant wishes, they can also transfer their interest to another party such as a spouse, parent, or child. Since every owner has a co-equal share of the asset, any decision – such as selling a property – must be mutual.
Scenario
Parties to joint tenant houses forgot to put the house deed in the name of the spouse who was to – according to a divorce agreement – get ownership of the property. When the spouse died, the property went to the spouse who was not supposed to get the house, according to the terms of the divorce. The testator’s heirs were alarmed to learn they were not getting the home. It was, after all, not their fault that their late father failed to get the deed done.
Who was right? Should the title prevail? Or should the deceased testator’s intention prevail? Good questions, and fodder for litigation which means, of course, delays, costs, and attorneys’ fees.
The Death and Divorce authors wrote that in determining who inherits joint tenancy property in the case of divorce, it comes down to whether the decision falls to probate court or family court. Joint tenancy property typically carries a right of survivorship, meaning the surviving joint tenant inherits the property upon the death of the other.
In California, this right can be affected by family court proceedings. If a divorce petition has been filed and served but not yet finalized (bifurcated), the surviving spouse will inherit the property, even if the decedent’s will specifies otherwise. To prevent this, a person can sever the joint tenancy before bifurcation by following specific legal procedures outlined in Family Code § 2040(b)(3) and Civil Code § 683.2. The rules of survivorship also apply to personal property like cars and bank accounts held in joint tenancy.
Takeaway
A party who allows assets to remain in joint tenancy during divorce proceedings runs the risk that the surviving spouse will inherit them. Notice of severance should be given before a divorce is final. Attorneys – both family law and estate law practitioners – must be aware of these complexities as they advise clients.
Ademption and Abatement
What if an asset left to someone no longer exists – whether it has been destroyed, sold, or given away – when the testator dies? An example would be when a testator wishes to turn over their business to their children but sells the company before dying. In other words, there is nothing there; the asset is adeemed. But caselaw exists to abate such ademption when the change in the asset was not due to the testator’s actions.
Scenario
In their will, a testator bestowed to their child a portfolio of stock in Company A, which in the 1950s and 1960s was the number one retailer in the country. Over the years, due to various changes in corporate structure, that stock split three ways into stock in other companies, Company B, Company C, and Company D. Despite these changes in the asset, the testator did not change the form of the gift, but the resulting gift – the shares in companies B, C, and D, still passed to the child.
In this situation the gift was not adeemed. If the testator had sold the shares, the gift would no longer exist – it would be adeemed – and it would not be available to pass to the child. The testator’s intentions were honored, and the issue became one of ademption abatement by passing along the stocks – which originated a shares of Company A – but effectively transformed into shares of the other companies.
Takeaway
Even though in the above situation the children received the stocks – ademption was abated – the best route is to adjust estate plans to account for changes in the form of an asset.
Conclusion
Attorneys must be aware of the different ways California family courts and probate courts will decide key issues that arise after a testator dies. This will help them avoid litigation or prepare them should litigation become inevitable. We urge estate planners to remain alert and tuned in to their clients’ life changes. You want to ensure their plans are updated and modified appropriately. Ambiguity and uncertainty too often lead to protracted and costly litigation and risk the smooth distribution of assets according to a testator’s final wishes.