It has long been established in Florida that when a marriage is dissolved (divorce, dissolution or annulment), the ex-spouses are treated as having died before each other. This prevents divorced couples from inheriting from each other’s assets. Unfortunately this treatment did not extend to third party agreements such as life insurance, IRAs or death beneficiary designations with financial institutions. Well now the Florida Legislature has addressed this problem and all that has changed, or has it?
As of July 1st, 2012, the Florida Legislature enacted section 732.703 expanding the above treatment of ex-spouses to extend to additional assets such as life insurance, employee benefit plans, IRAs, pay on death accounts and several others. This statute is designed to eliminate a problem that has plagued divorced couples for a very long time, that of an ex-spouse receiving benefits that should rightfully go to the individual’s family. However, there are wide ranging exceptions which keep the recent addition to the law from eliminating this problem completely.
Exceptions to the New Law
One of the most far reaching exceptions to the new law is that the law does not apply to an instrument governed by the laws of another state. Companies like insurance companies, banks, and IRA custodians regularly indicate in their documents that the instrument is to be interpreted according to the laws of the state in which their primary offices reside or that have laws favorable to their business. So it is exceedingly likely that a person’s financial agreements are governed by the laws of another state and would not be controlled by this new law.
The next exception is to protect companies as they attempt to identify the proper beneficiary under the new law. If the instrument does not identify a beneficiary as the individual’s spouse, or specifically identifies the beneficiary as not a spouse, the company may pay directly to that beneficiary without liability for wrongful payment. For this reason, it is important to identify the relationship of beneficiaries and change that identification as the relationship changes.
On the other hand, if a beneficiary is listed as a spouse, a company can rely on the death certificate to determine marital status in making distributions. If the death certificate does not indicate marital status, the company may rely on an affidavit from the primary or alternate beneficiary as to marital status. For this reason, both beneficiaries and alternate beneficiaries should be certain that the death certificate is accurate as to marital status or that the proper party provides the required affidavit.
Other exceptions include conflicts with federal law, conflicting dissolution agreements, designations made after dissolution, accounts held jointly with rights of survivorship and remarriage to the ex-spouse to name a few.
Prior to Divorce
While this law is designed to keep assets from going to the wrong person, it does not come into effect until the actual date of dissolution. This is one reason it is so important to review these designations as soon as the decision to seek dissolution is made. It is not possible without a pre or postnuptial agreement to completely disinherit a spouse prior to dissolution; however, it is possible to minimize what they would inherit in the event of death.
Minor or Disabled Children
One last possibility that is not affected by this new law, or even the previous laws, is if the ex-spouses share a minor or disabled child. In this scenario, the ex-spouse may not directly inherit the individual’s assets, but may gain control of those assets as the guardian of that child. This can be avoided by the proper use of a trust.
The bottom line is that the new law is a step in the right direction to avoiding unintended consequences following a divorce, but it is still best to seek legal advice on your estate plan both upon making the decision to seek a dissolution and immediately following the granting of a dissolution. A family law attorney may be well equipped to represent you in the dissolution proceeding, but they may not be fully aware of the impact on your estate plan. It is up to you to ensure assets are distributed according to your wishes because it is your family that will bear the consequences.
If you have any questions or would like additional information regarding this article please write us at Firm@Scovills.com or call us at 941-365-2253.