During the initial stages of a divorce action, I am often asked by the client whether they should change their Will to eliminate their spouse as a beneficiary, executor, etc thereunder. The last thing they want is for their dreaded, estranged spouse to get their estate and/or from being in charge of their affairs should they die before the divorce is finalized. They may have similar sentiments when it comes to their spouse continuing to be designated as beneficiary on life insurance, pension and retirement accounts, and the like. Unfortunately, divorce litigants often assume that they can simply do so – we are getting divorced for goodness sakes. In reality, this is often not the case. Estate-related considerations incident to a divorce are much more involved and can have significant consequences. Indeed, an attorney should discuss with his or her client early on in the representation the status of that client’s estate plan, beneficiary designations, (whether regarding life insurance or other assets), how they should be dealt with during the divorce process itself, as well as the intentions post-divorce. Certainly for more complex estates, and if finances warrant, consideration should be given to having the client consult with and/or retain an estate attorney to work together with divorce counsel to address such matters. Problems often arise, however, when the attorney and client don’t have that discussion and/or a client takes it upon themselves to unilaterally act upon such matters, with potentially adverse and/or devastating consequences. The purpose of this blog is to provide a brief overview of these estate-related issues so as to minimize the likelihood of this occurring.
Let’s address the Will question first. Excluding for this discussion, clients who may have a complex Estate Plan in place, married couples most often may have reciprocal Wills whereby each spouse is designated as the beneficiary of the other’s estate, with any children designated as contingent beneficiaries in the even one spouse were pre-decease the other. Many people, and even some attorneys, operate under the assumption that the filing of an action for divorce itself either nullifies such Wills or at least revokes the spousal beneficiary rights therein In reality, until a Judgment of Divorce, whether final or from bed and board, is entered spouses are still considered to be married. The mere filing of an action for divorce does not effect this. Only upon the entry of a Judgment of Divorce or annulment are such spousal beneficiary and/or representative designations in a Will deemed revoked by operation of law. N. J. S. A. 3B:3-14. Such misconceptions may be fueled by seemingly contradictory wording contained in the Elective Share Statute, N.J.S.A. 3B:8-1. Intended to address situations where a surviving spouse may have been minimally provided for and/or left out of the decedent’s Will, said Statute affords that surviving spouse the right of election to take an Elective Share of one-third of the augmented estate “provided that at the time of death the decedent and the surviving spouse or domestic partner had not been living separate and apart in different habitations or had not ceased to cohabit as man and wife, either as a result of judgment of divorce from bed and board or under circumstances which would have given rise to a cause of action for divorce or nullity of marriage to a decedent prior to his death under the laws of this State”. Note that there is no comparable language under the Probate Laws relative to the enforcement and/or validity of Wills generally, or certainly when a spouse’s estate rights would not call into play an elective share election. With this in mind, how should one respond to a client’s question during the pendency of a divorce as to whether he or she should change their Will? There is no statute or rule which expressly prohibits someone from changing his or her Will during the pendency of a divorce. This is as opposed to beneficiary designations for insurance policies and the like which I will comment on shortly. Therefore, in theory a party could do so and many attorneys may counsel their clients to not only go ahead and do so, but to also revoke and execute new documents such as Living Wills, Health Proxies and/or Power of Attorneys, if applicable. Before doing so, however, consideration must be given to the general precept that during the pendency of a divorce, (i.e.Pendente Lite) the status quo of the marriage is to be maintained to the extent reasonably practical. Would a court view a spouse’s unilateral attempt to change Wills to be an alteration of that status quo? Regardless of the existence of any expressed law restricting same, would such an action cause a court to view that party in a negative light going forward in that case? In most circumstances, is changing Wills even necessary? In many marriages, the bulk of the parties’ assets are held in joint names, be they real estate, bank accounts or investment accounts. As to those joint accounts, same would normally pass to the surviving joint owner upon death by operation of law. The other major asset most people have are pension or retirement accounts which although held in an individual name, their disposition upon death is generally controlled by a beneficiary designation, presumptively in virtually all cases, the spouse. Such assets would pass to the designated beneficiary upon death. In each of these instances, such assets would pass “outside of the Will”. Only assets owned by the decedent at death not falling into these categories would need to pass under the Will. Hence, before advising a client to change their Will or not, one should analyze what would actually be accomplished in doing so and whether this would outweigh altering the “status quo” and the potential adverse impact that this may have in the eyes of the court. If there remain legitimate reasons to do so, should it be done on notice to the other side as part of a reciprocal modification of the parties’ existing estate plan?
What about beneficiary designations? The easy answer is that a spouse should not change beneficiary designations during the pendency of a divorce proceeding in the absence of agreement or court order. While there is no law expressly regulating the beneficiary designation of privately held and maintained life insurance benefits, R. 5:4-2 (f) establishes the underlying policy that during the pendency of a divorce litigation, insurance coverages existing as of the time of filing, including the identification of named beneficiaries, are not to be canceled or modified. This follows the underlying philosophy that pendente lite, the object is to maintain the status quo to the maximum extent possible pending a full investigation of the case. See generally Rose v. Csapo, 359 N.J. Super. 53 (Ch. Div. 2002). Changing the beneficiaries of life insurance in the absence of agreement or court order may not only be violative of court rules, they could implicate the rights of third parties. If the beneficiary designation of life insurance is changed from the spouse to a third party and the insured dies during the pendency of the divorce, that new beneficiary would have a vested right to those proceeds upon death. The insurance company would be obligated to pay those proceeds to the designated third party beneficiary. Attempting to undue this could involve extensive litigation, potentially involving not only the decedent’s estate, but the insurance company and third-party beneficiary, with the issues to be litigated including whether there was an existing duty to maintain life insurance, whether there was a violation of that duty, whether a duty of support to the aggrieved spouse had been established, or for the imposition of equitable remedies.
The other main category of assets of the marriage to which a beneficiary designation may apply are pension and retirement benefits. Qualified pension and retirement plans are governed by the provisions of the Employee Retirement Income Security Act (ERISA), 29 U.S.C.A. § 1001-1461. One of the protections provided by the ERISA is the statute’s “spendthrift” provision which mandates that each pension plan shall provide that benefits provided under the plan may not be assigned or alienated, 29 U.S.C. A. § 1056 (d)(1), a mechanism designed to prevent the dissipation of retirement funds. Further, pursuant to the Retirement Equity Act of 1984, ERISA was amended so as to include provisions to safeguard the financial security of widows by mandating that pensions plans provide automatic survivor benefits to surviving spouses. Section 1055 of ERISA provides that survivor benefits would automatically be paid to surviving spouse upon the death of the pension participant unless the participant and spouse consent in writing to an alternate beneficiary. In other words, once a participant becomes vested under the plan – that is – has earned a nonforfeitable right to any portion of his accrued benefit – he spouse is assured of receiving a survivor’s annuity if her husband predeceases her. Hawxhurst v. Hawxhurst, 318 N.J. Super 72 (App. Div. 1998). No other document, including a Will or a Prenuptial Agreement, may effectively waive or confer rights in a spouse’s pension plan. Even during the pendency of a divorce, a plan participant cannot assign or otherwise designate an alternate beneficiary for pension benefits. Groh v. Groh, 288 N.J. Super 321 (Ch. Div. 1995). These spendthrift and anti-alienation provisions of ERISA, particularly in protecting a spouse’s survivorship rights in their spouse’s retirement benefits have been strictly construed, rejecting “fairness” arguments or even waivers contained in Judgments of Divorce when the strict requirements of the statute have not been adhered to. See generally Estate of Lanken, 290 N.J. Super 556 (Ch. Div 1996); Seavey v. Long, 303 N.J. Super 153 (App. Div. 1997). Hence, at least as far as to pension and retirement plan benefits are concerned, absent consent, one spouse may not be able to remove the other spouse as beneficiary thereof during the pendency of divorce proceedings. Could this have the potential of creating a windfall to one spouse in the event of the other spouse’s death during the pendency of divorce? Possibly; however, our New Jersey Supreme Court in the case of Kay v. Kay 200 N.J. 551 (2010) appeared to extend the principles set forth in the “black hole” case of Carr v. Carr, 120 N.J. 336 (1990) so as to allow the estate of a decedent spouse to assert claims for equitable relief against the surviving spouse under appropriate circumstances where that spouse died in the midst of a divorce proceeding before that spouse’s claims against the other had been determined.
Even from this brief overview, it is evident that even in the most basic of divorce cases, there are potential complexities lurking behind every counter. Let the experienced attorneys at the law office of James P. Yudes, P.C. help navigate you through this process.