Chapter 37 - § 37.2 • IMPACT OF MARITAL DISSOLUTION ON EXISTING ESTATE PLANS

• Jurisdiction: Colorado

§ 37.2 • IMPACT OF MARITAL DISSOLUTION ON EXISTING ESTATE PLANS

§ 37.2.1—Overview

For estates of decedents dying before July 1, 1995, C.R.S. § 15-11-508 provided that divorce or annulment of a marriage revoked any disposition by will to a former spouse, any provision conferring a general or special power of appointment on the former spouse, and any designation of a former spouse as a fiduciary. For estates of decedents dying on or after July 1, 1995, the effect of divorce is much broader. C.R.S. § 15-11-804 addresses the effect of a divorce or annulment on a decedent's will and other governing instruments concerning not only dispositions to and fiduciary nominations of the decedent's former spouse, but also the relatives of the decedent's former spouse. For this purpose, "relatives of the decedent's former spouse" includes persons related to the former spouse by blood, adoption, or affinity, and who after the divorce are not related to the decedent. C.R.S. § 15-11-804(1)(e). The term "governing instruments" includes wills, as well as trusts, insurance policies, multiple-party bank accounts, retirement plans, securities registered in beneficiary form (TOD), deeds, instruments creating or exercising a power of appointment or power of attorney, and any other donative instruments. C.R.S. § 15-10-201(22). The Colorado Supreme Court has explained that § 804(2) reflects "a legislative determination that the failure of an insured to revoke the designation of a spouse as beneficiary after dissolution of the marriage more likely than not represents inattention." In re Estate of DeWitt, 54 P.3d 849, 852 (Colo. 2002). Accordingly, to the extent any beneficiary designations are neither revoked nor rescinded as part of the divorce, such designations will be deemed to be revoked by operation of law upon the entry of the decree.

More specifically, for estates of decedents dying on or after July 1, 1995, C.R.S. § 15-11-804(2) provides that divorce or annulment of marriage:

1) Revokes any revocable disposition or appointment of property made by a divorced individual (in a governing instrument) to his or her former spouse or to the relatives of the former spouse;
2) Revokes any revocable provision in a governing instrument conferring a general or non-general power of appointment on a former spouse or the relatives of the former spouse;
3) Revokes any revocable provision in a governing instrument nominating a former spouse or the relatives of the former spouse to serve in a fiduciary capacity, including a personal representative, executor, trustee, conservator, agent, or guardian; and
4) Severs the interests of the former spouses in property held by them at the time of the divorce as joint tenants with the right of survivorship or as community property with the right of survivorship, transforming the interests into tenancies in common.

It is important to remember that C.R.S. § 15-11-804 applies only to governing instruments executed before the marriage is judicially dissolved. C.R.S. § 15-11-804(1)(d). Also, the terms of a governing instrument, property settlement agreement (made before or after marriage), or court order may all override the effects of C.R.S. § 15-11-804. C.R.S. § 15-11-804(2). Thus, the statute will not apply when a person makes a disposition to or nominates a former spouse (or the former spouse's relatives) in a will, trust, or other governing instrument created pursuant to or after the divorce.

It is also important to remember that C.R.S. § 15-11-804 does not apply to legal separations. The Colorado Probate Code states at C.R.S. § 15-11-804(1)(b) that "[a] decree of legal separation that does not terminate the status of husband and wife is not a divorce for purposes of this section." Thus, a legally separated spouse maintains his or her status as a "surviving spouse" even if a decree of legal separation has been issued by the court.

If the provisions of a governing instrument are treated as revoked, the former spouse and the relatives of the former spouse are deemed to have disclaimed such provisions. C.R.S. § 15-11-804(4). A person who disclaims a disposition is generally treated as having predeceased the decedent or the event. Hence, former spouses and their relatives are deemed to have died immediately before the divorce or annulment for purposes of revoked fiduciary nominations. Id.

Subsequent to the enactment of C.R.S. § 15-11-804, the court cases interpreting the statute have been somewhat inconsistent. In In re Estate of Becker, 32 P.3d 557 (Colo. App. 2000), aff'd, In re Estate of DeWitt, 54 P.3d 849 (Colo. 2002), the court found that revocation of a beneficiary designation of a life insurance policy acquired during the marriage did not violate the prohibition against retroactive legislation when the statute was enacted after the divorce. But, in In re Estate of DeWitt, 32 P.3d 550 (Colo. App. 2000), the court held that the statute applies only to contracts (i.e., insurance policies) arising after the date of the statute. In addition, C.R.S. § 15-11-804(7)(c) has been found to be in direct conflict with ERISA and preempted by ERISA. In re Estate of MacAnally, 20 P.3d 1197 (Colo. App. 2000); see also Boggs v. Boggs, 520 U.S. 833 (1997).

Practice Pointer
A spouse is sometimes required by a property settlement agreement or court order to designate the former spouse as a beneficiary of a will or life insurance policy to secure a maintenance or child support obligation until the obligation terminates. To the extent such designations are made before the divorce is final, the payor spouse should execute a beneficiary designation after the divorce is final to ensure its validity. He or she will need to change such designations when the obligation is terminated to avoid benefits passing to the former spouse.

§ 37.2.2—Trusts

C.R.S. § 15-11-804 applies to dispositions and fiduciary designations made in a revocable trust executed before divorce. A...