Florida Bar Journal

Estate Planning Issues in a Divorce Situation II: An Update and Standing Orders

In 2012, Ms. Brunner published, in this Journal, a review of ‘estate planning type’ rights during 1) the pendency of a divorce action — still legally married — and 2) after the final judgment is entered — no longer married.^[1] This article provides an update on Florida law and reflects upon automatic standing orders that are entered in divorce actions. This article suggests that standing orders may have the unintended effect of enlarging the rights of surviving spouses who have filed to dissolve their marriages beyond the rights of surviving spouses in intact marriages. It proposes language for standing orders that follows, rather than expands, the spousal rights under Florida’s Probate Code.

Incapacity of One Party During the Divorce

The first situation reviewed is when one party becomes incapacitated during the pendency of the divorce, such as permanent loss of mental ability or temporary physical injury. The decision maker will be determined by the documents the incapacitated spouse has in place or, if none, by Florida law.

• Durable Power of Attorney — Under a validly executed durable power of attorney (DPOA), the designated decision maker (called the “agent” or “attorney-in-fact”) acts on behalf of a principal in accordance with the authority conferred under the document and under Florida law. If a spouse executes a DPOA, designating the other spouse as agent, unless the document provides otherwise, it is automatically terminated upon the filing of a petition to dissolve the marriage. This prevents the agent, a soon-to-be former spouse, from using the DPOA to misappropriate the assets of the principal spouse. This is consistent with Florida’s equitable distribution law that provides the date of filing as the cut-off date to determine marital verses non-marital assets.^[2]

• Health Care Surrogate — A spouse is often designated as a health care surrogate (HCS) to make health-care decisions for the other spouse and/or receive health information on his or her behalf.^[3] This designation is effective until revoked, terminated under its terms, or upon entry of final judgment of dissolution of marriage, when it is automatically revoked.^[4] The filing of a petition for dissolution of marriage has no legal effect on a HCS designation, unless the document provides otherwise. But although the filing of a petition does not automatically revoke a designation under a HCS, a principal spouse filing for dissolution of marriage can always voluntarily revoke a designation.

• Living Will — Another estate planning document is a living will. A spouse may make a living will expressing his or her desires concerning life-prolonging procedures and may designate a surrogate to execute his or his wishes.^[5] Unless the document provides otherwise, as with a health care surrogate, an automatic revocation of the former spouse as surrogate arises upon entry of final judgment of dissolution of the marriage between the principal and the surrogate.^[6] A spouse may wish to voluntarily amend the living will upon filing for dissolution of marriage. If not, the soon-to-be former spouse would continue to make decisions regarding the withholding of life-prolonging procedures.

• Health Care Proxy — In the absence of a health care surrogate or living will, or judicially appointed guardian, health-care decisions for an incapacitated patient are made by a patient’s spouse.^[7] While it may be possible for a spouse to execute a simple, interim “advance directive” writing by which to make a statement regarding the spouse as a health-care decision maker, the best course would be to execute an updated HCS and living will to designate a new surrogate.^[8]

• Guardianship of Person or Property — If no valid DPOA or HCS exist and a spouse becomes incapacitated, the other spouse could seek to be appointed guardian over the other (“of the person”) and over the other’s assets (“of the property”). Preference in whom the court may appoint as guardian is given to someone related by marriage or blood to the incapacitated spouse.^[9] Pending dissolution proceedings may be a sufficient conflict of interest so as to disqualify the divorcing spouse as a candidate for guardian.^[10] However, to avoid dispute before the court, the client (while competent) can declare a preneed guardian and state whom he or she prefers to serve as guardian.^[11] The preneed guardian then has priority in appointment unless the court determines that appointing such person is contrary to the best interests of the declarant.^[12]

• Successor Trustee of Trust — Revocable trusts are a common part of estate planning in which the settlor retains some degree of control over its terms. If the soon-to-be former spouse is named as a trustee of a trust (as either the initial or successor trustee) and the trust instrument does not address the situation of divorce (or filing for divorce), that spouse may be able to serve as a trustee both during and after the divorce. The creator of the trust (settlor) or the trust beneficiaries may, or may not, be able to remove the anticipated ex-spouse as a trustee under terms of the trust instrument or under Florida’s Trust Code.^[13] After a dissolution action has been filed, the settlor of a trust may wish to examine the provisions set forth in the trust instrument pertaining to trustee succession or the power to remove a trustee and make modifications thereto. If the trust is revocable, any changes will likely be easier to accomplish than with an irrevocable trust.

Death of One Party During the Divorce

As sometimes occurs while a dissolution action is pending, one of the spouses dies while the parties are still legally married.

• Treatment of Decedent’s Remains — Anyone may carry out written instructions of a decedent regarding the decedent’s body and burial arrangements before a personal representative is authorized.^[14] In the absence of written instructions, one Florida court held that the survivors of the decedent — and not F.S. §497.005(43) — control disputes between family members over the disposition of the decedent’s remains.^[15]

If a client has specific instructions regarding his or her burial arrangements, those instructions should be reduced to writing in an attempt to minimize any dispute.

• Beneficiary Under Will or Revocable Trust — The filing of a petition for dissolution of marriage has no legal effect on devises granted under a will or revocable trust, unless the document so provides. Therefore, upon the death of a party while still married, the surviving spouse will receive the devises granted to him or her under the will or revocable trust unless the terms of the documents themselves contain conditions. An example of a condition is that no proceeding for dissolution of marriage be pending at the time of the testator’s death.

Upon the filing of a petition for dissolution of marriage, Florida law does not preclude spouses from amending their existing testamentary documents — will and/or trust — to remove the soon-to-be former spouse. In 1990, the Florida Supreme Court determined that the right to dispose of property by will was not purely statutory but was constitutionally protected. This constitutionally protected right applies equally to spouses who have filed for dissolution of marriage. Additionally, a spouse has the constitutional right to be free from unreasonable legislative restraint on his or her right to devise property.^[16] As discussed below, removing the spouse from the documents does not remove the spouse from inheriting under an elective share election. It can, however, reduce the inheritance from a likely 100% share to a 30% share.

A final judgment of dissolution of marriage, while spouses are alive, does, however, void any provision of a will or revocable trust that affects the former spouse. Unless the will or revocable trust provide otherwise, the will or revocable trust is construed as if the former spouse died at the time of the entry of the judgment for dissolution.^[17]

• Life Insurance Policy, Annuity, and Individual Retirement Account or Other Qualified Plan — Individuals hold wealth in a life insurance policy, annuity, individual retirement account (IRA), deferred compensation plan, or qualified retirement plan. Traditionally, an annuity provides a guaranteed payment over time to the annuitant until the death of the person named in the contract or until a final date. Upon the death of the annuitant, the company pays the proceeds or continued annuity payments, if any, to the beneficiary designated on the contract. Spouses are free to change their annuitant beneficiary during marriage. Similarly, the proceeds of a life insurance policy and the benefits of an IRA or other qualified plan pay according to the beneficiary designation provided by the owner to the insurance company or plan custodian if the insured or owner dies. Spouses are also free to change their IRA beneficiary during marriage. But, under a standard standing order, after filing for dissolution of marriage, spouses lose their right to change the beneficiary of their life insurance policy and/or annuity.

The filing of a dissolution action has no effect on a beneficiary designation of a life insurance or annuity policy. In 2012, the Florida Legislature enacted a default revocation-on-divorce statute to address the effect of divorce, dissolution, or invalidity of a marriage on the disposition of these types of assets at death.^[18] A beneficiary designation made prior to a final dissolution to a former spouse is void as of the time of the final dissolution of marriage.^[19] This default statute applies to a life insurance policy, annuity, employee benefit plan, IRA, pay-on-death account, and security or other account registered to transfer-on-death.^[20] The default statute does except situations where the final judgment directs that the benefits are to be payable to the decedent’s former spouse, where federal law provides otherwise, and in other specific circumstances.^[21] Upon entry of final judgment of dissolution of marriage, the beneficiary should be either re-designated or updated to reflect the parties’ marital settlement agreement (MSA). Optimally, the MSA would identify by plan or policy name and number each asset that is, or can be, subject to a beneficiary designation; who is to own it; who is to be the beneficiary (and, thus, receive the proceeds or death benefit, etc.) or whether the owner is free to name whomever he or she chooses.

• ERISA (Employee Retirement Income Security Act of 1974) — Florida’s default revocation-on-divorce statute is inapplicable to the extent federal law, ERISA,^[22] applies, such as with a 401K plan. If the beneficiary is not changed after a final dissolution, ERISA requires that the plan be paid in accordance with the documents governing the plan.^[23] But ERISA rights can be waived, and in this event, ERISA directs what is effective for a spousal waiver of rights to an ERISA-covered retirement plan, like a 401(k) plan. Because the default revocation-on-divorce statute does not apply to 401(k) plans, if a spouse waives rights in the MSA to remain as beneficiary, it is important to contact the plan administrator of a 401(k) plan to designate a new beneficiary. Or, the estate of the 401(k) plan owner could bring a post-distribution action against the former spouse to enforce the waiver in the MSA and to recover the plan proceeds. Interestingly, the specific, and the plain, language of the MSA was determinative in Martinez-Olson v. Estate of Olson, No. 3D20-1301 (Fla. 3d DCA 2021), to rectify the ERISA beneficiary designation form after the benefits were distributed to the designated beneficiary. Ideally, a waiver should specifically identify the plan by name and number.

ERISA requires a spouse to be the beneficiary of at least 50% of the employee retirement benefits, unless the spouse consents to a different arrangement. By designating a co-beneficiary after a dissolution action has been filed, an owner spouse can redirect the remaining 50% from the soon-to-be former spouse to the intended heirs. The plan custodian will likely require the spouse’s written consent as to the remaining 50%. Under the standard standing order, the spouse’s written consent is required. The practical effect with an ERISA plan is that the spouse’s consent is going to be required.

• Pay-on-Death (POD) or Transfer-on-Death (TOD) Accounts — A bank account or securities account can be designated to pay out or transfer, upon the death of the owner, to the person named as the beneficiary.^[24] Upon the death of a party while still legally married, the account pays according to the beneficiary designation provided by the owner. Florida’s default revocation-on-divorce statute voids any beneficiary designation to the former spouse that was made prior to the dissolution or court order invalidating the marriage.^[25]

• Jointly Titled Assets — Common jointly titled assets include bank accounts, real estate, or securities. Assets held with rights of survivorship or as tenants by the entireties pass by operation of law to the surviving joint tenant if one party dies while married. Upon the dissolution of the marriage, tenants-by-the-entireties property becomes tenants-in-common under F.S. §689.15.

• Florida Statutory Spousal Rights — The Florida Legislature has enacted statutory protections for a surviving spouse that limit the decedent spouse’s testamentary dispositions, unless they have been waived. The default protections should be viewed as the safe harbor established by the legislature within which a family law court can maneuver but should not exceed by entry of a standard standing order, without due process to all parties.

• Intestate Share — If one of the parties dies during the dissolution action without having a valid will in place, that party’s individually titled assets pass under the state laws of intestacy. Note, those assets with a beneficiary designation will pass outside of the intestate estate and could bypass the spouse. The surviving spouse’s “intestate share” considers the consanguinity of the children. If there are no children or if all of the decedent’s children are the only children of the spouse, the spouse receives all of the estate.^[26] If a decedent has a child by a prior marriage, the surviving spouse receives one-half of the estate. As an aside, the surviving spouse is given preference in an intestate probate administration for appointment as personal representative.^[27]

• Elective Share — In the situation where a decedent does have a valid will, the intestate share explained above is inapplicable. To provide a safe harbor from disinheritance, a surviving spouse is statutorily entitled to an amount equal to 30% of the decedent’s augmented elective estate. This augmented estate is comprised of assets with a beneficiary designation, jointly titled property, revocable trust property, and certain property already transferred by the decedent, etc.^[28] This augmented estate encompasses assets that a family law court seeks to restrain by way of a standing order, until a final judgment is entered. The spouse must “elect” to take this share through a probate proceeding. The elective share laws subject non-probate assets to contribution toward satisfaction of the elective share. Regardless of the provisions in the owner-spouse’s will or revocable trust, the surviving spouse holds this statutory right to take (unless he or she waived it). Thus, there is a safe harbor already in existence that may make standing order provisions regarding a spouse’s beneficiary designations for life insurance and retirement plans unnecessary. Granted, the statute does make some equitable exclusions of assets, such as transfers for adequate consideration or in which the spouse consented, community property, and court-ordered life insurance.^[29] But standard standing orders enlarge this safe harbor beyond that which is provided by statute.

• Pretermitted Spouse — There is a limited situation where the intestate share will be applicable when the decedent does have a valid will, based upon the timing of the will and the marriage. If a decedent married after making a will and the (new) spouse is not mentioned in the (old) will, the surviving spouse receives an intestate share.^[30] While the intestate share is a larger percentage than the elective share, the probate assets it encompasses may be fewer than the elective estate.

• Homestead — If one party holds sole title to the marital homestead and dies while legally married, the homestead may be devised under the will to the spouse if there are no minor children of the decedent. If there are minor children or the homestead is devised elsewhere, the surviving spouse automatically receives a life estate in the homestead. Additionally, the surviving spouse has a statutory option to elect an undivided one-half interest as a tenant-in-common instead of the life estate. If the deceased-owner does not have a descendant, the surviving spouse takes the entire interest.^[31]

• Exempt Property — In addition, the surviving spouse is entitled to exempt property: household furniture, furnishings, and appliances up to $20,000 net value; two motor vehicles (each less than 15,000 lbs.); qualified tuition plans; and benefits paid if a teacher or school administrator dies in connection with work.^[32]

• Family Allowance — In addition, Florida law also provides a surviving spouse and the heirs that the decedent was supporting a reasonable allowance up to a total of $18,000.^[33]

•Waiver of Florida Statutory Spousal Rights — All of the Florida statutory spousal rights arising upon the death of the other spouse, as explained and discussed above, may be fully or partially waived before the marriage or after the wedding date and during the marriage. Such waiver could also exist in a complete property settlement entered into after, or in anticipation of, separation or dissolution of marriage, or divorce.^[34] Fair disclosure of each spouse’s estate is required if the waiver is executed after marriage and the agreement must be executed in the presence of two subscribing witnesses.^[35] Under F.S. §61.079, full disclosure or knowing waiver thereof is also required for such an agreement before marriage. Note that ERISA employee retirement plans will need the custodian’s requisite form signed.

Standing Orders in Divorce Situations Should Reflect Florida’s Probate Code

Upon commencement of a dissolution action, some courts automatically issue temporary standing orders that preclude certain actions during the pendency of the case. For example, such a temporary standing order may preclude changes, during the pendency of the dissolution action, to the beneficiary designation of a retirement plan or life insurance policy where the spouse was designated as the beneficiary prior to the filing of the dissolution action. After the final judgment of dissolution, a party is free to make changes, subject to the court order. The temporary order typically does not speak to the treatment of the plan or the death benefits should the owner die during the pendency of the action and under the temporary order.

Further along this path, one party to the dissolution may seek a court order precluding the other party from modifying his or her estate planning documents to remove the soon-to-be former spouse.

The underlying assumption of such orders is that both parties will outlive the dissolution action. As sometimes occurs, one of the spouses dies — while the parties are still legally married.

An automatic, temporary standing order, as well as an order entered upon a party’s motion, that halts all estate planning type-actions may impose an unreasonable restriction on a property owner’s right to dispose of property by will. The Florida Supreme Court has stated that the right to devise property, including testamentary disposition of property, is a property right protected by the Fla. Const. art. I, §2.^[36] Acknowledging that the property right is not absolute, the court held the right to be “subject to the fair exercise of the power inherent in the [s]tate to promote the general welfare of the people through regulations that are reasonably necessary to secure the health, safety, good order [and] general welfare.”^[37] “The Florida Supreme Court has now established that the ‘reasonable relationship’ or ‘rational basis’ standard applies to review a statute that potentially infringes on (but does not destroy entirely) property or testamentary rights.”^[38]

Florida has statutory protections for surviving spouses that do infringe upon the deceased spouse’s testamentary dispositions (i.e., elective share or pretermitted spouse, homestead, family allowance, etc.), all of which are reviewed above. If one of the protections has been contractually waived, then such spouse voluntarily forewent such benefit. Automatically enjoining one party in a dissolution action against exercising his or her right of testamentary disposition in the absence of a reasonably necessary applicable statute may be impermissibly broad or an infringement on substantive due process.

It has been argued that the elective share statutes violate the constitutional right to devise property as defined by the Shriners Hospitals for Crippled Children v. Zrillic, 563 So. 2d 64 (Fla. 1990), court. The issue decided by the Second District Court of Appeal was whether the elective share statutes impermissibly impinged on the constitutional right to devise property. The In re Estate of Magee, 988 So. 2d 1, 5 (Fla. 2d DCA 2007), court recognized that the elective share statutes arguably do impinge on constitutional rights, but that the elective share serves a legitimate legislative purpose of providing financial protection to a surviving spouse through a minority share in the assets of the decedent.

The standing orders are an injunction against estate planning by the parties.^[39] Is an automatic injunction that ties the estate planning hands of the spouse-owner “reasonably necessary”?

The policy and equitable reasons for a temporary injunction against changing beneficiary designations on retirement plans, annuities, or life insurance are presumably well-intended to contain the parties’ interests as they were before suit. But, they may inadvertently grant spouses with an open dissolution of marriage action expanded rights, broader than the law grants to any other spouses. A comparison may be helpful here.

For example, in a non-divorcing, but still acrimonious, marriage, if a spouse removes her husband as a beneficiary under her non-ERISA IRA and she then dies, upon her death, her husband can elect the 30% elective share of the augmented estate as his minimum inheritance. If that same spouse were to file for divorce prior to changing the beneficiary, the standing order would prevent her from exercising her right to remove her husband as beneficiary of her IRA. If the wife then dies, the standing order results in her husband receiving 100% of the IRA even if her will states her intent to disinherit her husband. In this comparison, the legal and practical effect of the standing order is to enlarge the 30% elective share to a mandatory 100% share. The surviving spouse of an acrimonious marriage would likely be in a better financial position if his or her spouse dies during the pendency of the dissolution case than outside of it.

A standing order that more closely emulates the Probate Code would likely be on sounder constitutional footing and would balance the right to transmit property to others at death with financial protection of a surviving spouse. Because the elective share has already withstood the constitutional challenge in Magee, it is a safe harbor within which the family law court could maneuver to provide financial protection to a surviving spouse of a minority share in the assets of the decedent. By way of a proposal, an order could state that any changes to beneficiary designations affecting a spouse who was named prior to the filing are to provide a minimum 30% share to the spouse:

TESTAMENTARY DISPOSITIONS: For all property or assets in which the interest of one party will pass or otherwise transfer upon the death of such party, including, but not limited to, jointly titled assets, homestead real estate, probate estate, or by a beneficiary designation under a retirement plan, pension or benefits, deferred compensation plan, life insurance or annuity, last will and testament, or revocable trust, the owner-spouse shall not reduce the other spouse’s beneficial interest in such asset or disposition to less than a 30% share, which is to be equal to the 30% elective share provided under Section 732.201 et. seq., Florida Statutes, and any and all changes shall be reviewed in light of such elective share amount and augmented elective estate. Notwithstanding the above, as to any ERISA plans, such as a 401(k) or Florida Retirement System, the other spouse’s beneficial interest shall not be less than a 50% share, or as directed by ERISA. Should the owner-spouse wish to change his or her dispositions at death other than as provided in this order, he/she may only do so with the express written agreement of both parties or a court order. Following the entry of a final judgment dissolving the parties’ marriage, the owner-spouse may make full changes to such disposition or assets unless otherwise ordered by this court.

FIDUCIARY APPOINTMENTS: At any time, a party may update the fiduciary appointed under his or her advance directives (e.g., health care surrogate, living will, declaration of preneed guardian), durable power of attorney (agent), last will and testament (personal representative), or trust (trustee) without leave of court or the other party but in no event shall circumvent any other provision of this Order by doing so.

Conclusion

This article explores the overlap of two areas of law — dissolution of marriage and estate planning. Clients involved in a dissolution of marriage should be reminded to consider the estate planning type of documentation they have in place. Florida law does not prohibit a party from amending his or her will or trust or beneficiary designation. The constitutional estate planning rights of a married individual should not be unreasonably frustrated without due process simply upon the filing of a dissolution action by either spouse and the court’s entry of a temporary standing order. To the extent that a temporary standing order is enforceable and effective to unreasonably restrain a party’s right of testamentary disposition, it also serves to enlarge a surviving spouse’s statutory rights should the owner-spouse die during the action. Because the Florida Probate Code, and particularly the elective share statute, sets forth safe harbor provisions for avoiding a complete disinheritance, this article proposes language for the standing orders — or temporary injunctions — that follows the Probate Code. The proposal allows a party to update his or her estate plan — but not at the expense of the 30% elective share or the 50% ERISA requirement — and to update the fiduciary appointments.

This column is submitted on behalf of the Family Law Section, Douglas A. Greenbaum chair, and Krystine Cardona, editor.