Michigan law has provisions intended to protect divorced people’s assets from going to unintended beneficiaries after their deaths. That said, the most effective and efficient way to protect your estate and your intended beneficiaries is not to rely on Michigan law, but to update your estate plan yourself. Here are some things of which you should be aware:
Life Insurance, Endowments, and Annuities
Let’s say your spouse is named as beneficiary on your life insurance policy (or on an annuity or endowment in your name). According to MCL 552.101, if you divorce, your divorce judgment is supposed to contain a provision determining your spouse’s rights in that policy. If it doesn’t, your estate is supposed to become the beneficiary. Problem solved, right?
Well, maybe. The statute goes on to say that the insurance company will not be liable for payments it makes according to the terms of the policy, unless the company receives written notice from the estate, an heir, or other interested party of a claim under the policy and the divorce before it makes payment. If you die and your spouse claims payment on the policy – and your estate fails to give proper, timely notice for the insurer – the estate could be out of luck. The estate’s only recourse at that point would be to sue your ex for the insurance proceeds, a time-consuming and costly process with no guarantee of recovery.
Or, consider this: mindful of the scenario above, you make your children beneficiaries of your life insurance policy. If you die while they are minors, it is likely that their surviving parent, your ex-spouse, will control these funds. Hopefully, your ex will use this money wisely, for the children’s benefit. However, you lack all control over that unless you take further steps, such as creating a trust for your children, and making the trust the beneficiary of your life insurance policy. That way, the proceeds will be used by a trustee you’ve selected, in a way you’ve directed, for your children’s benefit.
A will is the cornerstone of any estate plan. If you have a valid will, Michigan probate courts will distribute your property according to the will’s terms. If you’re divorced, MCL 700.2807 revokes any bequests to your ex-spouse in a will you made before the divorce. Even so, the best move is to simply create a new will. The cost of a revised will is almost always less than the cost of even a short fight in probate court. Consider this, too: if you should die while your divorce is pending, your estranged spouse will inherit your property as provided in the will, even if you die the day before your divorce would have become final.
ERISA Retirement Benefits
Unlike most life insurance policies and annuities, divorce does not automatically terminate your ex-spouse’s claim to certain important death benefits, most notably employer-provided retirement plans such as 401(k)s, or life insurance plans governed by the Employee Retirement Income Security Act of 1974 (ERISA). ERISA is a federal law that “trumps” state law. ERISA states that a plan administrator must turn funds over to the beneficiary named in the plan documents, regardless of state law. So if your former spouse is still the named beneficiary, he or she will remain the beneficiary unless you take active steps to change that.
A Final Caution: “Divorcing” Does Not Equal “Divorced.”
As mentioned above, if you die while your divorce is pending, your estranged spouse will still inherit under your will. That is not the only danger to your assets, or to you. If you should become suddenly incapacitated (like in a serious car accident) while your divorce is pending, powers of attorney you’ve previously granted your spouse will still be in effect. What’s more, financial institutions, banks, and third parties are entitled to rely on a power of attorney unless they have written notice that it has been revoked. What this means, in effect, is that while you’re lying in a coma, an angry, not-quite-former spouse could be laying waste to your financial affairs.
Even more of a concern: who have you appointed to make health care decisions for you in the event you’re unable to make them for yourself? If the answer is your estranged spouse, ask yourself if you want him or her making what could literally be life-or-death decisions for you.
If you are filing for divorce in Michigan, or if you have been served with divorce papers, don’t wait until your divorce is final to update your estate plan. Attorney Jim Hubbert is experienced in both Michigan family law and estate planning, and can help protect you with the updated estate plan you need during your divorce and afterward.