Divorce and the Effects of Crs Section 15-11-804 on Estate Planning Documents

• Publication year: 2005
• Pages: 93

34 Colo.Law. 93 Colorado Bar Journal 2005.

2005, January, Pg. 93. Divorce and the Effects of CRS Section 15-11-804 on Estate Planning Documents

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93

Vol. 34, No. 1, Pg. 93

The Colorado Lawyer
January 2005
Vol. 34, No. 1 [Page 93]

Specialty Law Columns
Estate and Trust Forum
Divorce and the Effects of CRS § 15-11-804 on Estate Planning Documents
by Julie S. Erikson

This column is sponsored by the CBA Trust and Estate Section The column focuses on trusts and estate law topics, including estate and trust planning and administration, elder law probate litigation, guardianships and conservatorships, and tax

planning

Column Editor:

David W. Kirch, of David W. Kirch, P.C., Aurora - (303) 671-7726, dkirch@qwest.net

About The Author:

This month's article was written by Julie S. Erikson, Boulder, an associate with Kingsbery, Johnson, Foster & Love, LLP - (303) 443-4694, jerikson@ kingsberyjohnson. com. The author thanks the partners at Kingsbery, Johnson, Foster & Love for their editorial assistance.

This article discusses the effect of CRS § 15-11-804 on estate planning documents, including wills, powers of attorney, and beneficiary designations for nonprobate assets. The effect of ERISA preemption of CRS § 15-11-804 is addressed in light of a 2001 U.S. Supreme Court case. Estate planning recommendations for divorcing and divorced clients also are provided.

Will Rogers once remarked, "I guess the only way to stop divorce is to stop marriage." The prevalence of divorce in modern society confirms the acuity of this observation.1

Many individuals who are divorcing or already divorced call on their estate planners to advise them of the effects divorce will have on existing estate plans. Under Colorado law, several components of an estate plan typically are revoked upon divorce such that the former spouse is removed from the estate plan as a beneficiary and designated fiduciary. In addition, a designation of a former spouse as beneficiary of a life insurance policy or as an agent under a power of attorney is similarly revoked. Divorce also severs any property interests held by former spouses as joint tenants with rights of survivorship and converts such interests into tenancies in common. Nevertheless, such automatic revisions of estate plans upon divorce may be overridden by several means.

This article addresses the effect of divorce on dispositive provisions and fiduciary designations in wills. For purposes of this article, all references to wills include revocable living trusts. The article also discusses the effect of divorce on agent designations under powers of attorney and beneficiary designations for nonprobate assets, such as retirement accounts and insurance policies.

Divorce Revocation Statute: CRS § 15-11-804

Colorado's divorce revocation statute, CRS § 15-11-804, is intended to bring the law into line with the expectations and presumed intents of divorcing couples. The heart of the divorce revocation statute, CRS § 15-11-804(2), generally provides that a divorce or an annulment:2

1) revokes any revocable disposition or appointment of property to a former spouse in a governing instrument3 and any disposition or appointment created by law or in a governing instrument to a relative of a former spouse;4

2) revokes any revocable provision in a governing instrument conferring a general or nongeneral power of appointment on a former spouse;5

3) revokes any revocable nomination in a governing instrument nominating a former spouse to serve in any fiduciary capacity, including as personal representative, executor, trustee, conservator, agent, or guardian;6 and

4) severs any property interests held by former spouses as joint tenants with rights of survivorship and converts such interests into tenancies in common.7

Dispositive provisions of a governing instrument are given effect as if the former spouse disclaimed the dispositions revoked by CRS § 15-11-804(2).8 In the case of a nomination revoked by this statute, the governing instrument is given effect as if the former spouse died immediately before the divorce.9 For example, suppose a will nominates the testator's former spouse as the personal representative of the testator's estate and a friend as alternate personal representative. In the event of divorce, the testator's friend will have highest priority for appointment as personal representative.10 CRS § 15-11-804(4) will treat the testator's former spouse as if he or she predeceased the testator, thereby rendering the former spouse unable to act as personal representative and leaving the testator's friend as the designated personal representative.

Some individuals may wish to retain a former spouse as a devisee of their estates or as a fiduciary or agent. The divorce revocation and severance rules of CRS § 15-11-804 may be superseded by any of the following means: (1) the express terms of the governing instrument; (2) a court order; or (3) an agreement regarding division of the marital estate executed before or after the marriage or divorce.11

Four Common Ways
CRS § 15-11-804
May Be Overridden

Colorado's divorce revocation statute may be overridden by:

1) the express terms of the applicable governing instrument;
2) court order;
3) agreement; and
4) documents executed subsequent to the divorce, such as wills, powers of attorney, or beneficiary designations.

For instance, the designation of a former spouse as the primary beneficiary under a life insurance policy may not be revoked upon divorce if the terms of the policy (the governing instrument) state that policy proceeds will be paid to a former spouse unless such designation is properly revised before the insured's death. Likewise, a provision in a settlement agreement or court order may direct distribution of particular assets or policy proceeds to a former spouse despite the divorce revocation mandates of CRS § 15-11-804. Moreover, if revocation is inconsistent with a divorced individual's desires, he or she can always re-designate his or her former spouse as a fiduciary or agent or beneficiary by re-executing the appropriate estate planning documents following the divorce.

Effect on Wills

The divorce revocation rules of CRS § 15-11-804 apply to revocable instruments. Because a will is revocable until the testator's death, upon divorce, all testamentary provisions in favor of the testator's former spouse, such as distributions, powers of appointment, or designations as a fiduciary, will be revoked. Such provisions will be given effect as if the former spouse disclaimed his or her interest or died immediately before the divorce.12 Because medical and financial powers of attorney are revocable by the principal, the nomination of a former spouse as agent will be revoked and a former spouse will be treated as if he or she died immediately before the divorce (absent an agreement or court order to the contrary).13

In administering the estate of a divorced decedent, the personal representative's attorney should confirm that the decedent was formally divorced at the time or his or her death.14 Additionally, the attorney should determine whether an agreement was executed prior to, during, or after the marriage and whether there is a court order that specifically addresses the effect of divorce on the parties' estate plans.

Absent a court order or agreement to the contrary, the wills of divorced couples will be automatically revised pursuant to the terms of CRS § 15-11-804 so as to revoke any testamentary dispositions in favor of the former spouse. Likewise, any nominations of the former spouse as a personal representative, trustee, or other fiduciary will be revoked. Again, if a client desires his or her former spouse to remain a beneficiary or to serve as a fiduciary under his or her will, a new will must be executed following the divorce.

Effect on Trusts

The applicability of CRS § 15-11-804 to trusts depends, in part, on the type of trust involved. Following is a discussion of the impact on revocable trusts and irrevocable trusts, along with suggestions on the use of trust protectors and the definition of "spouse" in irrevocable trust documents.

Revocable Trusts

Absent an agreement or court order to the contrary, all trust provisions in favor of a former spouse or those nominating a former spouse as a fiduciary will be automatically revoked upon divorce, if such provisions are revocable. A revocable trust allows the settlor alone to cancel any distributions and...