If you and your spouse are separated or you have recently divorced, this blog will summarize the relevant North Carolina statutes.
Separation and Estate Planning
A separation alone has no legal effect on your estate plan. If you and your spouse have executed a separation agreement, it will likely have reciprocal renunciations of statutory spousal rights such as the Year’s Allowance, Intestate Succession, and the Elective Share. These spousal rights exist regardless of whether your Will or Trust includes your spouse. As my Wills and Trusts professor always said, “you can’t disinherit your spouse in North Carolina.” Without a separation agreement, your spouse will still retain certain statutory spousal rights to a portion of your estate even if you remove them from your Will or Trust. Therefore, a separation agreement is critical if attainable, but updating your Will or Trust to remove your spouse does provide protection because statutory spousal rights such as the Elective Share and Year’s Allowance must be asserted and have time limitations whereas existing provisions in your Will or Trust are automatic. A separation agreement may also provide reciprocal renunciations regarding provisions in an existing Will, Trust, or Power of Attorney; however, separation agreements are often not public record and are subject to contract defenses so changing the Will, Trust, or Power of Attorney itself is highly recommended.
Effect of Separation and Divorce on Powers of Attorney
With respect to a financial power of attorney, N.C.G.S. § 32C-1-110(b)(3), provides that an agent’s authority terminates upon divorce between the principal and the agent. Regarding health care powers of attorney, N.C.G.S. § 32A-20 provides the authority of a health care agent who is the spouse of the principal shall be revoked upon entry of a court order of divorce or separation between the principal and the health care agent. As you will note, separation does not revoke your spouse’s authority as an agent under a financial power of attorney so updating your financial power of attorney upon separation is of urgent concern.
Effect of Divorce on Will provisions
N.C.G.S. § 31-5.4 provides that an absolute divorce does not revoke the Will but revokes all provisions in favor of the former spouse. Recently, however, the North Carolina Court of Appeals held that the statute does not revoke all provisions that refer to the former spouse[1]. For example, most spouses have a Will provision that specifies how their property is devised if their spouse predeceases them. Therefore, if the former spouse is alive, what you have provided if your spouse has predeceased you will not apply, and your property may pass via intestacy (as if you did not have a Will). There is, however, a statutory revision effective on March 1, 2024, which will apply to Wills probated on or after such date, that will fix this issue and provide that Will provisions shall be interpreted as if the former spouse predeceased the Testator. Nevertheless, provisions in a Will in the event of a predeceased spouse often benefit the family of the former spouse, so the added clarity from the statutory revision does not necessarily equal a better result.
Effect of Divorce on Revocable Living Trust provisions
With respect to a revocable trust, N.C.G.S. § 36C-6-606 provides divorce revokes all provisions in favor of the settlor’s former spouse. Strangely, the statute provides that provisions are interpreted as if the former spouse failed to survive the settlor, which is inconsistent with the Will statute until March 1, 2024, after which time both statutes will treat divorce as if the former spouse was predeceased. There are other issues present with trusts; primarily, many spouses create a joint living trust where both spouses are settlors and co-trustees and may have active access to the trust assets after divorce much like a joint bank account. Therefore, upon divorce or before, a joint trust typically needs to be revoked and defunded. Additionally, the statute only applies to revocable trusts and not irrevocable trusts so provisions for your former spouse in an irrevocable trust are not revoked.
Effect of Divorce on Other Assets
Lastly, many individuals have assets in their estate which are not controlled by a Will or a Trust and instead pass by rights of survivorship or beneficiary designations. North Carolina has no statute which revokes beneficiary designations on accounts or life insurance policies in favor of the former spouse. Therefore, updating beneficiary designations upon separation or divorce is of urgent concern.
With respect to real property or a mobile home owned as tenants-by-the-entirety between spouses, the rights of survivorship are revoked upon divorce and the asset becomes owned as tenants-in-common in accordance with N.C.G.S. § 41-63. However, bank accounts, stocks, or other investments which are owned jointly with rights of survivorship are not tenants-by-the-entirety property and, therefore, are not affected by divorce and, even more, a former spouse maintains active access to those accounts after a divorce.
Conclusion
In summary, North Carolina law regarding revocation of provisions in favor of a former spouse in certain documents provides very limited protection. Accordingly, it is imperative that you consult with an estate planning attorney upon a separation or divorce. Call our office to schedule a consultation.
[1] Parks vs. Johnson (870 S.E.2d 280, N.C. Ct. App. 2022)