Divorce, remarriage and the designations nobody updated

Among the most common and most painful estate outcomes: a substantial asset passing to a former spouse because a form was never changed.

Why it happens

Divorce involves a great deal of documentation, and beneficiary forms held by third-party institutions are easy to overlook.

Years pass. The person remarries, makes a new will leaving everything to the current spouse, and assumes the matter is settled.

It is not, because a will does not control assets passing by designation.

The statutory revocation trap

Many states have statutes providing that divorce automatically revokes provisions in favour of a former spouse — in wills, and in some states in beneficiary designations.

These provide real protection and they are not complete.

Federal law governing many workplace retirement plans has been held to preempt such state statutes, meaning the plan administrator must pay according to the designation on file regardless of what state law says about divorce.

Which produces the outcome that a former spouse receives a workplace retirement account despite a state statute apparently revoking the designation.

The practical conclusion: never rely on automatic revocation. Update the form.

What the divorce decree does and does not do

A separation agreement or decree may require a party to change a designation or to waive rights in a retirement account.

An agreement to change a designation is not the same as changing it. Courts have generally held that the actual designation on file governs payment, leaving the intended beneficiary to pursue a claim against whoever received the money — which is expensive and uncertain.

Where a retirement plan is being divided, a qualified domestic relations order is the mechanism, and it must be properly drafted and accepted by the plan administrator.

Confirming that the order has been implemented, rather than assuming, is a necessary step.

The checklist after a divorce

Everything with a designation.

Workplace retirement plans, including any from former employers.

Individual retirement accounts.

Life insurance, including employer-provided cover.

Annuities.

Bank and brokerage accounts with payable-on-death registrations.

Health savings accounts.

Then the wider documents: the will, any trust, powers of attorney and healthcare proxy — where a former spouse is frequently named as agent and remains so.

And the practical items: joint accounts, joint credit, property titles, and emergency contacts held by employers and schools.

Remarriage complications

A second marriage introduces competing claims that require deliberate planning.

A designation naming the current spouse leaves children from the first marriage with nothing from that asset.

A designation naming the children leaves the surviving spouse without it.

Splitting between them may leave both inadequately provided for.

The tools that address this include trusts providing income to the surviving spouse with the remainder passing to children, life insurance purchased specifically to provide for one group, and clear separation of assets intended for each.

Prenuptial or postnuptial agreements can set expectations in advance, and are more useful when discussed openly than when produced late.

Spousal rights that cannot simply be ignored

Two constraints worth knowing.

Many workplace retirement plans require a current spouse to be named as beneficiary unless they consent in writing.

Most states give a surviving spouse a statutory right to claim a defined share of an estate regardless of the will, which means disinheriting a spouse entirely is generally not possible without a valid agreement.

Community property states have further rules affecting what can be disposed of.

The remarriage in later life

Where these issues arise most acutely, because both parties frequently have adult children and assets accumulated separately.

The arrangements that tend to work involve being explicit early: what each person brings, what remains separate, what is shared, what each set of children can expect.

Families that discuss this openly before the marriage have substantially fewer disputes afterwards than those who leave it to be discovered.

General information only, not legal advice. Rules on revocation, spousal rights and retirement plans vary and interact with federal law — consult a qualified attorney.