EstateMents Blog

How Divorce Impacts Your Estate Planning

3/14/2019

By: Reed Pruyn, Salt Lake City, Utah

Divorce: it’s a fact of life. Even when it’s a smooth process, it can take a lot out of you. Rightly so, the focus is moving on and forward from it. But, a critical, oft-forgotten part of that progress is revising your estate plan or getting one in place for the first time. Otherwise, you and your family could suffer some pretty horrible unintended consequences involving your former spouse. Here are some of the issues you should think about.

Give your divorce agreement to your estate planner. Your estate attorney needs to know what obligations you have to your ex-spouse in the event of your death.
Update your health care proxy. An advance health care directive allows you to name someone to make health care decisions for you if, for example, you have an accident or emergency and cannot communicate. Unless you want your former spouse making these decisions –I haven’t met many people who do – you need to name someone else you trust.
Change your power of attorney. If you had an old power of attorney naming your former spouse, revoke it and execute a new one naming a friend, relative or trusted advisor to act as your agent regarding your finances and assets.
Revise your will and trust. Subject to any continuing legal obligations, remove provisions for your former spouse and remove him/her as executor and trustee. You want to make sure your “ex” does not receive any assets of yours if you die and has no control over your estate or trust.
Rethink guardianship if you have minor children. You may choose to name your former spouse as the guardian in your will. Even if not, he/she will most likely serve as guardian of your minor children if you become incapacitated or die, unless he/she is determined by the court to be unfit. However, if you had a bad divorce or if your former spouse has a substance abuse problem, you may want to name someone else as the guardian and even consider leaving enough cash in a joint account with the named trusted guardian) to fund any litigation necessary to prove the former spouse unfit. In any event, you’ll want to set forth in your will a robust successor guardianship plan in the event your former spouse also becomes incapacitated or dies.
Make sure you have a trust for minor children. If you do not have a trust for your minor children, and your former spouse is their guardian, he/she will have control of the children’s finances until they turn 18 or 21 depending on your state. Most clients do not want their former spouse controlling their children’s assets. You should have a revocable trust that names someone of your choosing as trustee to access and control the money for your children if you die.
Pay particular attention to life insurance requirements. It is common for people to just completely ignore their obligations to maintain life insurance under a divorce agreement. One ex-husband maintained the life insurance policy, but removed his ex-wife as required under the divorce agreement naming his new spouse as the beneficiary instead. Another client’s ex-husband died having let the required policy lapse. Both instances resulted in litigation. Review your obligation to maintain life insurance under the divorce agreement with your estate planning attorney, and with your divorce attorney, if necessary.
Check your beneficiary designations. Another very important area people often forget about or ignore are retirement plan beneficiary designations. Make sure your 401K and IRA beneficiary designations are consistent with the terms of your divorce agreement. I have seen situations where a divorced person never updated a beneficiary designation after divorce, and then died. This can result in unforeseen consequences and almost always very expensive litigation to correct who the beneficiary should have been. Some states automatically allow for a divorced spouse to be removed as the beneficiary in these instances, but proving that to a national financial institution that administers the account can be costly and time consuming—even worse trying to claw back money from a former spouse thinking he/she can make off with a windfall. Better to have beneficiary designations updated. If by chance you do want to name your ex-spouse as the beneficiary, execute a new designation dated after the divorce. It is also a good idea in that instance to leave a letter of intent with your attorney so your intentions are clear.
Don’t forget about the prenuptial agreement and providing for blended family circumstances in a will and trust. It is surprising how soon some people get remarried after their divorce is finalized. Needless to say, if you are thinking about getting remarried, make sure you have a prenuptial agreement. And if you have children, head off at the pass any future conflicts between a new spouse and your children by setting forth very specific planning in your will and trust.

Tie up those loose ends from your divorce and get your estate plan in order. Remove your “ex” from now outdated estate planning documents, take charge, and then get on with living.

Finally, a separate list of family and estate planning considerations come into play if you have not yet filed for divorce but are planning to do so. We can help there too.

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