New Law Addresses Effects of Divorce in Estate Plans

New Law Addresses Effects of Divorce in Estate Plans

As part of Senate Bill No. 2851, the Mississippi Legislature passed a section of laws effective July 2020 that clarify the rights of divorced persons in wills, trusts and life insurance contracts.  This clarification is intended to ensure the desires expressed in estate plans by spouses who later divorce are protected, and to prevent subsequent family anger and confusion.

Section 91-29-1 et seq. provides that where a married person makes a will and later divorces, any provisions in the will or a trust that favor the ex-spouse (and any relative of the ex-spouse who is not also related to the will-maker) will be read as if the ex-spouse and his/her relatives died before the will-maker.  Therefore, the assets passing through the will or trust will pass instead to those persons named to receive them if the ex-spouse predeceased the maker of the will or trust.  Also, any appointment of the ex-spouse in those plan documents as executor, trustee or trust protector will lapse.  However, this presumption will not apply if there is a court order or agreement otherwise made between the spouses before, during or after the marriage.

Section 91-29-7 states that these rules also “govern the designation of a former spouse as a beneficiary of certain life insurance policies or as a beneficiary under certain retirement benefit plans or other financial plans.”  Thus, divorce is likely to void the designation of a spouse as beneficiary of life insurance, retirement plans, and annuities.

Any relative (such as an heir) of the former spouse who receives a payment they are not entitled to under this law shall return the payment, property or benefit received to the person(s) who is entitled to receive it, and is personally liable to that person or those persons for the amount of the payment or value of the benefit received.

Where a married couple execute a joint trust and later get divorced, Section 91-29-15 requires that at the death of one of them, the trust shall be divided into two separate trusts based on the respective contributions of each to the trust.  The deceased grantor’s separate trust will then be administered under the rules in this law.

Section 91-29-17 states that designation of a former spouse as beneficiary in a “payable on death” (POD), “transfer on death” (TOD), or other beneficiary-type financial institution account will be voided by a subsequent divorce, subject to a court order or later specific re-designation to the ex-spouse.  The account would then pass to any alternate designated beneficiary or, if none, to the estate of the deceased account holder.

Section 91-29-23 addresses the naming of a spouse as beneficiary of a life insurance policy.  A later divorce will void that designation unless provided otherwise by the divorce decree or other court order, a subsequent re-designation of that former spouse as beneficiary by the policy owner, or if the policy is payable to the former spouse for the benefit of a child or other dependent.

Section 91-29-25 declares that a provision naming a spouse as beneficiary in a IRA, employee stock option plan, or other form of savings, bonus, profit-sharing or employer plan will be ineffective if the account owner and spouse later divorce, and the plan payments will be made to any named alternate beneficiaries.  The business, insurer, or financial institution paying the benefits to the former spouse will be liable for such payment only if they receive written notice prior to such payment at their home or principal office that the beneficiary is no longer entitled to payment.