Divorce is often a catalyst for trusts and estates litigation, particularly when the possibility of divorce was not contemplated in an estate plan.
One of the most common scenarios that causes litigation is an irrevocable trust in which the spouse is a trustee and/or beneficiary, but there is no language addressing what happens if the couple gets divorced. This situation is often further complicated if the irrevocable trust is part of a larger wealth transfer plan involving several generations. A dispute over the rights of a former spouse might be avoided if divorce is expressly addressed in the trust document.
The Colorado Probate Code does not address what happens with an irrevocable trust upon divorce, but it does address the effect of divorce on many aspects of estate planning, such as powers of attorney, funeral instructions, wills and revocable trusts.
Colo. Rev. Stat. § 15-11-804 is a detailed statute regarding the effect of divorce on probate and nonprobate transfers. Generally, it provides that any revocable disposition, fiduciary appointment or power of appointment granted to the former spouse or the former spouse’s relatives prior to divorce is revoked. The exceptions include a court order, separation agreement, or governing instrument that expressly states otherwise.
In addition, Colo. Rev. Stat. § 15-11-804 provides that spouses’ interests in property as joint tenants with rights of survivorship are automatically severed and they become tenants in common upon divorce.
Unless expressly provided otherwise, divorce, annulment and legal separation automatically revoke a delegation to a spouse to direct the disposition of the declarant’s last remains. Colo. Rev. Stat. § 15-19-107(4). The same is true for an agent under a medical durable power of attorney. Colo. Rev. Stat. § 15-14-506(5)(c). A spouse’s power as agent under a financial power of attorney is severed at the time a dissolution of marriage action is filed. Colo. Rev. Stat. § 15-14-710.
The provisions of the probate code addressing the effect of divorce should be reviewed carefully, because the definitions and the points of revocation or severance vary depending on the particular statute. Also, most automatic revocations in the code can be overridden by specific language in the governing document. There may be unique circumstances where a couple wants to avoid the automatic revocation provided by the code and in those situations, the governing document should state so clearly.
To the extent that the possibility of divorce can be addressed, particularly when drafting irrevocable trusts, it could help mitigate the litigation that can result if a couple decides to separate down the road.