Estate planning and unintended consequences of marital separation

Under Arizona law, this means that, even if your estate planning documents fail to mention that divorce removes an ex-spouse as a beneficiary, an ex-spouse nevertheless cannot inherit as a beneficiary under estate planning documents following divorce. In this way, legal separation and divorce have much in common: Both keep sole and separate property separate, even for purposes of inheritance.

Additionally, legal separation and divorce may have legal benefits:

• the community property relationship is ended;

• the parties are financially separated, and there is a division of assets, debts and taxes;

• spousal maintenance may be awarded; and

• if the couple has minor children, parenting issues (child support, decision making, parenting time, etc.) must be addressed.

Where divorce and legal separation protect the integrity of separate property for inheritance, mere physical separation does not. While some states have

common law marriage,

there is never such a thing as

“common law divorce,”

and a court order recognizing the couple’s separation is still needed.

When spouses are physically separated, they might enjoy the benefit of deescalating an uncomfortable situation, and sometimes they increase the chance of reconciliation. However, as we discuss below, this leaves the spouses’ estate planning vulnerable.

If reconciliation is unsuccessful after

physical

separation, taking the next step –

legal

separation – can be difficult.

As a result, we have seen several instances in which physically separated spouses go their separate ways, move on to the next chapter in their life, and conduct their lives as though they were divorced or legally separated. Major decisions are made and key actions – and in many cases

inactions

– occur without much thought to the marriage that they never officially dissolved. This is a major mistake.

The tranquility of physical separation is disrupted from an unanticipated source – the couple’s estate planning documents (which one or both parties forgot to change) – with profound financial implications for both spouses. Without obtaining a legal recognition of the separated marriage, an ex-spouse may inherit from the estate, contrary to the other spouse’s wishes. Even worse, we have seen step-children cut off from inheritance to which they were otherwise entitled because their parents failed to legally dissolve their union or to update their estate planning documents.

Document Review

Even if potential reconciliation is a factor in choosing to simply remain physically separated without obtaining a divorce or legal separation, each party should take a critical look at all documents that give their spouse any rights or powers with respect to property or decision-making.

Those documents include:

• last will and testament

• trust agreement

• general powers of attorney

• financial powers of attorney

• health care powers of attorney

• HIPAA release forms

• bank accounts

• pay-on-death or transfer-on-death account designations

• life insurance policies

• retirement accounts

• non-retirement investment accounts

• real property deeds

• LLC and corporate documents

Whether divorce, legal separation, or physical separation is the chosen route, times of marital discord are among life’s most difficult experiences, and that difficulty often tempts people to set aside seemingly non-essential issues such as those discussed above.

To avoid unintended consequences, divorcing or separating spouses should address these important issues right away; tackling them head-on while their legal option is under construction can help them avoid costly and painful legal problems for themselves and perhaps their loved ones down the line

.

See also:

• Beneficiary Designations Supersede Wills and Trusts

• Has Your Estate Plan Aged as Gracefully as You?