Until last year, it was customary for a matrimonial attorney to advise his or her client that the last will and testament he might have previously executed might be changed as a result of the entry of the Judgment of Divorce. This was necessary because a disposition to a former spouse or the naming of her as a fiduciary of the estate would be automatically revoked once the divorce was final. The repeal of the old statute and its replacement by a much more compreensive one has changed the way divorce planning will be done.

Before the change in the law, dispositions to the former spouse other than by will were unaffected by the divorce. For example, a divorce did not revoke lifetime revocable trusts (including Totten Trusts), life insurance policy beneficiary designations, joint tenancies, or a power of attorney given to a former spouse. In light of the widespread use of these instruments, the failure to treat them the same as the law treated dispositions by will presented a major inconsistency.

The new law largely corrects the different treatment. Under its provisions, a divorce or annulment revokes any revocable disposition or appointment of property to a former spouse, including:

* a disposition or appointment by will,

* by beneficiary designation,

* by revocable trust (including a bank account in trust form),

* any revocable provision conferring a power of appointment on the former spouse,

* any revocable nomination of the former spouse to serve in a fiduciary or representative capacity, such as nomination of the former spouse as an executor, trustee, guardian, agent, or attorney-in-fact; and

* joint tenancies between former spouses (including joint bank accounts) and transforms them into tenancies in common.

New York case law already provides that divorce converts a tenancy by the entirety in real property to a tenancy in common.

The new section also provides for the revocation of a beneficiary designation (to the extent permitted by law) in a pension or retirement-benefits plan, including but not limited to, a stock bonus or profit sharing plan, account arrangement, brokerage firm or investment company account

Opportunities and Needed Action

A diivorcing spouse should now understand that most dispositions and designations to a former spouse will be automatically revoked unless specifically saved by language in the governing instrument. These automatic revocations may result in ineffective beneficiary designations in a variety of circumstances. Therefore, divorced spouses should now take the opportunity to review all of their estate planning documents and revise provisions that are now left without beneficiary or fiduciary.

Failure of a divorced spouse to name new beneficiaries in certain instruments could lead to the divorced spouse's "estate" being designated the default beneficiary. In some cases, such as tax-deferred retirement plans, the failure to name an individual beneficiary could result in severe tax consequences by accelerating the recognition of income to the estate.

In addition, assets that were once non-probate property, such as a Totten trust, because they passed by operation of law to the former spouse as the designated beneficiary, may now require a probate proceeding. It also means that estate plans once designed to avoid probate, such as by the use of revocable trusts, may now instead require a construction proceeding to cope with missing fiduciary appointments and beneficiaries.

With the revocatory effect of divorce on estate planning now greatly expanded, the importance of pre-divorce planning is even more important than before the changes. The divorce process can take as much as two or more years to conclude in a Judgment of Divorce. During this period, should a divorcing spouse die, the law treats a divorcing spouse as still married and the adverse party is entitled to all of the rights and benefits of a surviving spouse. The same risk is present, of course, when a couple has simply separated. The separation could last for years without change in the married status of the couple.

If divorce is determined to be inevitable, there is little reason not to start on the process of revising the clients estate plan at the beginning of the divorce action. All of the elements of the divorcing spouses estate plan need review. Of course, any estate tax or income tax consequences of any potential change must be evaluated, as well.

This article presents a general discussion of New York law. No action should be taken on any of the matters discussed without the advice of an experienced professional.