Some recent Maryland appellate cases illustrate once again how the intersection of divorce law and inheritance law can cause unintended consequences. Whether it is keeping a former spouse as an heir, preventing a former spouse from inheriting, or protecting the division of assets after a former spouse dies, specific precautions are needed as part of divorce. Divorcing spouses who just assume the divorce decree ends the need for lawyer involvement may want to rethink that assumption. And divorce attorneys may want to expand the standard advice given during divorce representation based on these cases.
In late 2013, the Court of Appeals of Maryland issued a reported opinion that examined how divorce automatically revokes will provisions relating to the former spouse. It addressed the rare, but not unknown, situation where after divorce one of the former spouses wishes still to provide the other with an inheritance. The Court essentially said that under Maryland inheritance law, someone who intends to leave a former spouse an inheritance even in the event of divorce must express that specific intent in writing, either in the will or in the divorce decree – or must redo the will post divorce. Maryland courts, thus, must refuse to honor any bequest to a former spouse that is merely implied from the wording of a will that predates divorce. The case is Nichols v. Baer, Court of Appeals of Maryland,No. 33, September Term, 2011, Filed: October 22, 2013.
A different situation, and result, can occur when someone divorces but fails to change a beneficiary designation, or fails to use the proper waiver wording in the marital settlement agreement. A line of Maryland cases have found that the rights created by a beneficiary designation, whether in a life insurance policy, annuity, or retirement plan, is a contractual expectancy. These “expectancy” rights are different from the interest in property that many standard divorce settlement waiver clauses address. This concept, and the line of cases leading up to it, was addressed by the Court of Appeals of Maryland in Painewebber v. East, 363 Md. 408, 768 A.2d 1029 (2001). The consequence is that one must either use very careful and specific waiver wording in the marital settlement agreement, or change beneficiary designations after divorce – or both – to ensure a former spouse no longer can receive assets as the named beneficiary even after divorce.
Another unwanted situation can occur where spouses agree to divide retirement assets, but take no action to accomplish this division upon divorce. The danger arises if the former spouse who owned the retirement assets at divorce remarries and then dies before the court issues an order that divides the retirement. If that happens, the surviving former spouse may lose the expected share of the retirement benefits to the decedent’s new spouse. Under certain situations, the former spouse who was entitled to retirement benefits might be able to recover on a theory of equitable trust. This was the result in another recently decided case,Robinette v. Hunsecker, 212 Md. App. 76, 56 A.3d 1093 (2013). The equitable trust theory presents an expensive and less than perfect solution, though. And in some situations, such as with an ERISA qualified retirement plan, the equitable trust solution is less than a certain remedy. It is far better to ensure early entry of the appropriate court order dividing the retirement asset, and avoid any problem altogether.
These cases all illustrate the problems that can arise if the consequences of one spouse’s death are ignored during the divorce process. Whether it is redrafting a will, getting a will for the first time, changing beneficiary designations, or promptly following through with retirement benefit orders, conscious attention to these legal details is important. These cases illustrate why wise clients and competent legal counsel, as part of the divorce process, will plan ahead for the consequences from one spouse’s death.