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George F. Bearup, J.D. Senior Legal Trust Advisor

19-Sep-18

Revocation Effect of Divorce on Estate Planning Instruments

Take-Away: The legal effect of a divorce between spouses is to treat the former spouse as having predeceased the decedent for purposes of interpreting a Will, Trust or any other governing instrument in Michigan. But that, apparently, is not the law in other states. Consequently, it is dangerous to assume that how Michigan treats a divorced spouse’s interest in a Will, Trust or their interests subject to another governing instrument will apply when other state’s laws are implicated.

Background: Michigan has a couple of statutes that address the legal implications of a divorce when it comes to intestate succession rights and provisions made for a former spouse in a Will, Trust or another governing instrument.

  • MCL 700.1104(m): This EPIC section defines a governing instrument to include a deed, Will, Trust, funeral representative designation, insurance or annuity policy, POD or TOD beneficiary designation, pension, profit sharing, retirement or similar retirement benefit plan, or any dispositive or nominative instrument of any type. As such, the following two statutes are far-reading in their revocation of benefits or rights conferred on a former spouse (or the former spouse’s relatives) under any governing instrument.
  • MCL 700.2801(1): This statute provides that an individual who is divorced from the decedent, or whose marriage to the decedent has been annulled, is not the surviving spouse unless, by virtue of a subsequent marriage, he or she is married to the decedent at the time of death. A legal separation is not treated the same as a divorce, however. This section deals with the elimination of intestate succession rights of a former surviving spouse, as well as statutory allowances available to a former surviving spouse.
  • MCL 700.2807(1)(a): This statute provides: “Except as provided by the express terms of a governing instrument, court order or contract relating to the division of the marital estate made between the divorced individuals before or after the marriage, divorce, or annulment, the divorce or annulment of a marriage does all of the following: (a) Revokes all of the following that are revocable: (i) A disposition or appointment of property made by a divorced individual to his or her former spouse in a governing instrument and a disposition or appointment created by law or in a governing instrument to a relative of the divorced individual’s former spouse.” Other revocations that automatically result from a divorce include: conferring powers of appointment on the former spouse or a relative of the former spouse,  or naming the former spouse or his/her relative to serve in a fiduciary capacity, e.g. trustee,  personal representative, agent, conservator, etc. By referring to express agreements made before the marriage, any provisions on death for a former spouse set forth in a premarital agreement would arguably survive under this statute if not formally extinguished in a judgment of divorce.
  • MCL 700.2086 provides a series of definitions to implement MCL 700.2807, including  who is a ‘relative of the divorced individual’s former spouse’ (i.e. who, as a result, is also disinherited by virtue of the divorce), and what revocable means with respect to a governing instrument.

It should be noted that these statutes are substantive rules,  and not rules of construction which would otherwise permit the admission of extrinsic evidence to otherwise glean a settlor or testator’s intent.

Case Law: There are only a handful of reported cases in Michigan that deal with these statutes. A couple deal with another exception under MCL 700.2801 that can also cause a spouse (not just a former spouse) to forfeit their intestate succession share if they are willfully absent from the decedent spouse for a period of one (1) year or more and what is meant by being willfully absent. [MCL 700.2801(2)(i).] In re Peterson, 315 Mich App (2016); In re Estate of Erwin, Nos. 323387, 32926, 2016 Mich App LEXIS 911 (May 10, 2016); and Thachik v Mandeville, 487 Mich 38 (2010). Other reported Michigan cases deal with the intent of the testator and if extrinsic evidence can be used to ascertain that intent, often when  dealing with the relatives of the former spouse who are named as beneficiaries in a decedent’s governing instrument. In re Adams, No 316540 2014 Mich App LEXIS 1809 (September 16, 2014); In re Estate of Fink, No. 278266, 2008 Mich App LEXIS 1528 (July 24, 2008.)

Other State Statutes: While Michigan’s statutes seem to be pretty clear as to the effect of a divorce on a governing instrument, other states have statutes that provide slightly different results. One immediate example is the Florida decision Gordon v. Fishman, Florida District Court of Appeal, Second District, Case No. 2D17-1488, published just last month.

  • Facts: Ron executed a Will in 2005 in which he bequeathed all of his property to his then fiancée, Silvia. About 15 months later Ron and Silvia were married. Ron and Silvia divorced in 2013. Ron did not change his Will. Ron died in 2015 with no children or a spouse. The personal representative of Ron’s estate argued that Ron’s 2005 Will should be construed as if Ron died without any surviving named beneficiaries in reliance upon Florida’s revocation-on-divorce statute, which would mean that Ron’s intestate heirs would receive Ron’s estate. Silvia, no surprise, argued that the Florida revocation-on-divorce statute did not apply to her situation, and that she should still be treated as the sole beneficiary of Ron’s estate under his 2005 Will because she was not married to Ron when he executed his Will in 2005 in which she was named as residuary beneficiary- she was just a person with no legal relationship to Ron at that time. In short, the fact that Ron and Silvia later married, and then divorced, was irrelevant to Florida’s revocation-on-divorce statute according to Silva’s interpretation of the Florida revocation-on-divorce statute.
  • Florida Statute: The Florida revocation-on-divorce statute provides in relevant part: Any provision of a will executed by a married person that affects the spouse of that person shall become void upon the divorce of that person or upon the dissolution or annulment of the marriage.
  • Court’s Decision: The Florida Court of Appeals panel reversed the probate court which had held that the revocation-on-divorce statute applied to revoke Ron’s Will’s residuary disposition to Silvia. The Court of Appeals held that Florida’s statute applies only when the marriage predates the Will. Since Ron did not marry Silvia until 15 months after he executed his Will in 2005, the Florida revocation-on-divorce statute did not apply. Thus, the sequence of the parties’ status and the execution of the Will were critical to the effect of the Florida revocation-on-divorce statute. In sum, while the equities seemed to favor revoking Silvia as the residuary beneficiary under Ron’s Will after they had divorced, the Court felt that to add that equitable interpretation to the Florida statute (to include a later-spouse as subject to revocation on a divorce) would be to invade the province of the Florida Legislature, and if the Legislature did not like the result in this case, the Legislature should rewrite the Florida revocation-on-divorce statute to cover Wills written in anticipation of marriage where dispositive provisions are made for a fiancée.

Conclusion: As part of the Florida Court of Appeals decision, it  quotes from an earlier Florida decision that aptly describes the reality of divorced spouses not updating their estate plans. In Carroll v. Isrealson, 169 So. 3d 239 (Fla. 4th DCA 2015) the Court observed:

“ It is an understatement to say that animosities arise in divorce proceedings which are inconsistent with wills executed when everything was rosy in the marriage. Divorce attorneys typically advise clients to revise their estate plans for the post-divorce world. However, with all the stress of divorce litigation, it is not uncommon for people to resist the idea of their own mortality and procrastinate their post-divorce estate planning. And then they die with a will in place that provides for the former spouse.”

I would add to that judicial observation that clients are tired of paying their divorce attorney, and thus they are reluctant to continue to pay lawyers simply to update their estate planning documents.

It is a mistake to assume that all states have statutes like Michigan’s that treat the former spouse has having predeceased the decedent testator or settlor, as the Gordon decision instructs. Under Michigan’s statutes, Silvia would have been disinherited under Ron’s Will by virtue of their divorce, regardless of when they were married. It is also important to remember that while the Michigan revocation-on-divorce statute deals with all governing instruments,  federal law nonetheless controls the beneficiary designations with regard to qualified plans, e.g. 401(k) and pension plans under ERISA, but not IRAs. The fact that a plan participant divorces is insufficient, standing alone under federal law, to remove the former spouse as the named beneficiary of the deceased participant’s qualified plan account or qualified benefit; an affirmative change in beneficiary designation after the divorce is final is required by the plan participant in order to remove their former spouse as the named beneficiary.