The divorce is finally over, and you have made it through one of life’s most stressful events. You receive a closing letter from your attorney with a copy of your Judgment of Dissolution of Marriage. The letter recommends that you review your estate planning documents with an attorney so they can be updated now that you are divorced. You may not want to deal with another lawyer so soon after divorce but failing to update your estate plan could have financial consequences.
Below are 5 tips for estate planning during and after the divorce process.
1. Change Your Beneficiary Designations
As soon as your divorce is completed, you should update the beneficiary designations for assets that do not pass through a will or trust, such as retirement plans and life insurance policies. Failing to take the time to update your beneficiary designations can lead to serious trouble down the road.
Under the local rules of some county courts, once a Petition for Dissolution of Marriage is on file and the other spouse has been personally served, neither spouse can legally change their beneficiaries without the other spouse’s permission until the divorce is final. You may want to consider changing your beneficiaries prior to filing a Petition for Dissolution of Marriage. You can then make another change after the divorce is completed to reflect any agreements that were reached in the divorce settlement.
If you marry again in the future but you haven’t changed the beneficiary of your 401(k) to name your new spouse, the spouse you divorced years ago could end up with your retirement account upon your death. Take the time to prevent this problem from potentially occurring and change your beneficiary designations shortly after the divorce is over.
2. Create a New Will
You should consider creating a new will as soon as you make the decision to file for divorce for the same reasons stated in tip 1 above. If you already have a will and your spouse is designated as the executor and primary beneficiary of your estate, it’s important to name a new person to fill these roles as well.
When creating a new will, rethink how you want your post-divorce assets divided upon your death. This may require you to designate new beneficiaries for any assets that you previously left to your spouse or your spouse’s family. While the divorce is pending, you shouldn’t write your spouse out of the will. However, it is almost certain you wouldn’t want your spouse to get everything after divorce. Considering this, you should create your new will as soon as the divorce is complete to ensure the proper individuals inherit the remaining percentage of your estate should you pass away after your divorce is completed.
3. Amend Your Existing Trust or Draft a New One
If you have a revocable living trust, you’ll want to update it too. If you don’t have a revocable living trust, then you should consider drafting one at this time. As we have stated above in tips 1 and 2, whether you can change a trust during a divorce can vary pursuant to local court rules, so you should consult with your attorney before amending your trust. In addition to reconsidering what assets should be received by family members through the trust post-divorce, you probably would need to replace your spouse as successor trustee, if you designated him or her in the original trust.
If you don’t have a trust in place, you should consider creating one. This is especially important if you have children under eighteen years of age. In general, a revocable living trust provides several benefits that are unavailable with a will. If you have plans on getting married again or having more children, a revocable living trust can be a simple way to protect and manage the assets you want your children to inherit. For example, should you die while one or more of your children are under eighteen years of age, you can name someone of your choosing to serve as successor trustee to manage your children’s inheritance until they reach adulthood or an age of your choosing. This process also prevents your former spouse from being involved with the distribution of your children’s inheritance.
4. Update Your Power of Attorney Documents
If your spouse is designated as your power of attorney for medical and financial decisions in the event of your incapacity, you should update your power of attorney documents as soon as the divorce is filed. If you don’t have any power of attorney documents in place, you should meet with your attorney to draft a medical durable power of attorney and a durable financial power of attorney. A medical power of attorney grants the person you designate the legal authority to make healthcare decisions for you in the event of your incapacity. A durable financial power of attorney grants the person you designate the legal authority to make financial decisions for you in the event of your incapacity. Without these two documents in place, your spouse has priority to make medical and financial decisions for you in the event of your incapacity.
5. Revisit Your Estate Plan Once Your Divorce is Final
Before and during the divorce process, your goal in making these estate planning decisions is to limit your spouse’s potential control over you and your property should you become incapacitated or die. The decisions made during this time should be viewed as temporary. Once the divorce is final and your marital property and debt has been divided by the court, you should revisit all your estate planning documents and update them based on your new post-divorce life. As your life changes over time, you should review these documents with your attorney. Major life events such as another marriage, additional children, receiving an inheritance, etc. can affect your estate plan and should be viewed as reasons to review and amend your estate plan.
Should you need the advice of an experienced divorce attorney or have questions or concerns about your situation, know that we are here to help and ready to discuss those issues with you.