Updated: Apr 5
Divorce can be one of life’s most stressful events. With so many major changes taking place, it is easy to forget to update your estate plan—or simply put it off until it is too late. After all, dealing with yet another lawyer is probably the last thing you want to do.
However, neglecting to update your estate plan for divorce can potentially have unwanted consequences. Once you realize that the split is inevitable, there are things that you can do to start reworking your plan. Since you are still legally married until the divorce is final, if you happen to pass away or become incapacitated while your divorce is ongoing and have yet to update your estate plan, your current spouse (soon-to-be ex) could wind up with complete control over your life and assets. Unless you want your ex to have that kind of power, it is important to take immediate action to update your plan.
Keep in mind that some states have laws that limit your ability to change your estate plan once your divorce is filed, so you may want to consider making some or all of the following changes to your estate plan as soon as divorce is on the horizon and before filing (if possible).
Contact us as soon as you know divorce is coming, or right away if you have already begun the divorce process. We can support you to ensure your estate plan is properly updated to reflect the latest changes in your life situation, family dynamics, and asset profile.
1. Change Your Power of Attorney Documents
Unless you feel comfortable with your soon-to-be ex making legal, financial, and medical decisions in the event of your incapacity, updating your power of attorney documents as soon as divorce is inevitable is a smart move. All adults over age 18 should have both a durable financial power of attorney and a medical power of attorney in place.
A durable financial power of attorney allows you to grant an individual of your choice the legal authority to make financial and legal decisions on your behalf should you become unable to make such decisions yourself. Similarly, a medical power of attorney grants someone the legal authority to make your healthcare decisions in the event of your incapacity.
Without these documents in place, your spouse has priority to make financial and legal decisions for you. Since most people typically name their spouse as their decision maker in these documents, taking action to name someone else can protect your interests- particularly if you are expecting contention throughout the divorce process. Even the most amicable situation can get sticky once it is time to split and emotional and financial differences come to light.
2. Change Your Beneficiary Designations
Most people are so engulfed in the divorce process and the reality of a splitting family that they forget to make the necessary updates to their beneficiary designations. We have seen life insurance policies, retirement plans, bank accounts and even trust documents that still contain ex-spouse’s names as beneficiaries. Overlooking this important detail can derail your new estate planning goals.
Fortunately, some states have fail-safe statutes to protect divorcees who accidentally leave their ex-spouses as beneficiaries. Virginia for instance, will disallow the gift if the spouses are legally divorced at the time of death. This means that instead of going to your ex-spouse, the gift will pass as if the ex-spouse pre-deceased you. It would likely end up in the hands of your children or other family members instead of your ex-spouse. Check your state for the specifics of how gifts work when an ex-spouse is inadvertently left as the beneficiary of an account or life insurance policy.
In most states, once a spouse files divorce papers with the court, neither party can legally change their beneficiaries without the other’s permission until the divorce is final. This is typical for 401(k) accounts with your current employer anyway. Your current spouse is supposed to be your primary beneficiary unless they consent to your designation of another beneficiary. This type of account will need to be handled through the court since spouses have certain rights at stake in funds earned throughout the marriage.
Other types of accounts are more fluid with who can be named as a beneficiary. Bank accounts in your individual name, IRAs that are not with your current employer, and life insurance policies to name a few, generally allow you to name whomever you want as your beneficiary. While your spouse may still be entitled to certain assets based on how the court categorizes them (marital or separate), changing your beneficiary on accounts where you can do so legally can provide some protection.
Again, you always want to check with your state to see how the laws operate before making any significant changes in your estate plan. Consulting with an estate planning attorney licensed in your state is advisable even throughout the divorce process.
3. Create a New Will
When creating a new will, you will want to rethink how your assets should be divided when you pass away. This most likely means naming new beneficiaries for any assets that you previously left to your future ex and his or her family. This could also mean naming a new executor to carry out your wishes, if you have your future ex named as your executor in your current will.
Some states have laws that entitle your surviving spouse to a certain percentage of the marital estate upon your death, regardless of what your will says (this could happen if you pass away while you are still legally married). Since estate planning is so state specific, it is extremely important to check your state laws before making any major changes to your plan.
Given the uncertain legal landscape, meet with an estate planning attorney licensed in your state as soon as you know divorce is coming. They can advise you on your state’s laws and how to best navigate them when creating your new will—whether you do so before or after your divorce is final.
4. Amend Your Existing Trust or Create a New One
If you have a revocable living trust, you will eventually want to update it as well. If your trust is a joint trust between you and your current spouse (soon-to-be ex), it is likely that you will have to wait until the divorce is finalized to make any changes. Courts tend to frown upon any major financial changes that negatively impacts one spouse and significantly benefits another spouse just before a divorce. Like wills, the laws governing if, when, and how you can change a trust during a divorce can vary, so you should consult us as soon as possible if you are considering divorce. In addition to reconsidering what assets your soon-to-be-ex spouse should receive through the trust, you will probably want to replace him or her as successor trustee, if they are so designated.
If you do not have a trust in place, you should seriously consider whether it makes sense for your situation to create one, especially if you have minor children. Trusts provide an array of benefits that are unavailable with a will, and they are particularly well-suited for blended families. Given the likelihood that both you and your spouse will eventually get remarried—and perhaps have more children—trusts are an invaluable way to protect and manage the assets you want your children to inherit.
By using a trust, for example, should you pass away or become incapacitated while your children are minors, you can name someone of your choosing to serve as successor trustee to manage their money until they reach adulthood. You can even add flexible terms to help them manage the funds until you feel they will be responsible enough to manage the funds on their own. A trust is also a great option if you have a special needs or incapacitated family member who will need ongoing care.
5. Revisit Your Estate Plan Once Your Divorce is Final
Once the divorce is final and your marital property has been divided up, you should revisit all of your estate planning documents and update them accordingly based on your new asset profile and living situation. From there, your plan should continuously evolve along with your life circumstances, particularly following major life events, such as getting remarried, having additional children, or when family members pass away.
Get Started Right Away
Although it may be tempting to put off changing your estate plan when you are going through a divorce, especially if the process has been contentious, you do not want to wait. Meet with us to review your estate plan immediately upon realizing that divorce is unavoidable, and then schedule a follow-up visit once your divorce is final.
If you if have yet to create any estate plan at all, an impending divorce is the perfect time to finally take care of this crucial responsibility. Contact us today to learn more.
This article is a service of Reflections Life Planning LLC. We do not just draft documents; we ensure you make informed and empowered decisions about life and death, for yourself and the people you love. That’s why we offer a Family Wealth Planning Session™, during which you will get more financially organized than you’ve ever been before and make all the best choices for the people you love. You can begin by calling our office today to schedule a Family Wealth Planning Session and mention this article to find out how to get this $750 session at no charge.
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