During marriage, typically couples will name each other as beneficiaries of their retirement accounts, pensions, life insurance policies and similar assets. However, if a couple separates or divorces, they usually want to change their beneficiary designations to another person. As discussed in a previous post, it is important to talk with an estate planning attorney about what documents can and should be updated even before the divorce is final to avoid serious unintended consequences. New York law does provide some protection against accidentally leaving your money to an ex-spouse as evidenced in a recent case, but it is not foolproof.
Last month, the New York Appellate Division, Third Department decided a matter involving an annuity designation. In US Life Ins. Co. in the City of NY v. Shields, the Decedent had collected a large settlement in a personal injury matter years before he died. He purchased an annuity which would pay him out the settlement amount monthly for the rest of his life or for 30 years, whichever was longer. At the time he purchased the annuity, he was married, and had named his wife as beneficiary. Four years later, the couple divorced. Nothing was mentioned in the divorce decree about the annuity. In 2016, 8 years later, the Decedent passed away. The annuity still named his ex-wife as the beneficiary and she brought an action seeking payment of the annuity to her.
Section 5-1.4 of the New York Estates Powers and Trust law, states that “except as provided by the express terms of a governing instrument, a final divorce decree automatically revokes dispositions of property to a former spouse, including under wills or by beneficiary designations on testamentary assets.” In other words, even if divorced spouses don’t change their estate planning documents to disinherit their former spouse, a divorce decree generally will automatically revoke the disposition of property to the former spouse. The exception would be in the unlikely event that the terms and conditions of the trust, insurance policy, retirement account, etc. expressly stated that a divorce would not revoke the beneficiary designation.
The former spouse in the Shields case, however, argued that the above law did not apply to annuities because they are not mentioned in the statute. The trial court disagreed with the ex-spouse’s interpretation and the Appellate Division affirmed. The Appellate Court held that the list in the statute was for illustration purposes and was not intended to be an exhaustive list of all situations the statute would apply. Annuities fall within the statute and as a result, the beneficiary designation was automatically revoked with divorce.
The takeaway for divorcing couples is that New York law will protect you to some extent from accidentally leaving your ex-spouse assets. However, it is good practice to speak to an attorney because there are instances in which control and/or ownership of your assets could go to a spouse you are in the process of divorcing or you have already divorced.
For more information, read our related post – What Happens to Your Estate Plan When You Divorce?
For assistance with your estate planning during or after your divorce, contact us.