New Case Underscores Need to Update Beneficiary Designations After Divorce

Husband and Wife were in the midst of divorce proceedings when Wife died. Prior to her death, the parties executed a separation agreement dividing their marital assets. Under the agreement, Wife was to retain the couple’s residence in Tennessee, as well as an IRA. Husband was to receive the couple’s residence in Georgia and a financial account. The parties had neither finalized the divorce nor fulfilled the terms of the separation agreement at the time of Wife’s death. Thus a legal battle ensued between Wife’s estate and husband regarding the proper disposition of the Wife’s assets, particularly those that were titled jointly with her husband, as joint assets normally pass to the surviving spouse by operation of law.

The separation agreement was controlled by Georgia law, so much of the decision involves the appellate court’s interpretation of Georgia statutes and case law. As such, it will be of little use to Tennessee practitioners. That said, in a footnote, the court pointed out that Wife had removed Husband as beneficiary of her IRA. However, she failed to specify a replacement beneficiary, and the IRA agreement stated the IRA would pay to the surviving spouse if no beneficiary was designated. Thus, Wife’s attempt to remove Husband was ineffective, leaving Wife’s estate and Husband to fight over the IRA, with Husband presumably having the upper hand. This fight was wholly avoidable. Therefore, one takeaway from the case is that care should be taken to ensure that a client’s estate plan, including beneficiary designations, is properly updated in light of divorce.

In re Estate of Madelyn Cleveland, 2017 WL 902269 (Tenn. Ct. App.)

Posted by Joel D. Roettger, JD, LLM, EPLS

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