Financial security is one of the most important goals of adulthood, and maintaining it is…
An emotional divorce can lead to financial turmoil (especially if children are involved). Rarely is the division of assets an amicable process. While your estate plan may be the furthest thing from your mind during a divorce, without updating your documents, your ex-spouse may receive assets in ways you neither want nor expect upon your death. If you are going through a divorce or are already divorced without revising your estate plan, reviewing and making changes that reflect your current wishes is essential.
Your will is an excellent place to begin. Your estate planning attorney can update your will with a codicil that alters, changes, or subtracts the provisions. However, the many changes resulting from your divorce probably make writing a new will your easiest option. Your more recent will supersedes those written earlier, and your lawyer will include language stating all prior wills are revoked.
Updating Your Will
Your will names an executor (personal representative in some states) who pays the decedent’s final debts and taxes, conducts a discovery of assets to distribute to heirs after probate, and ensures any named guardian of minor children assumes their role. Your lawyer will construct your will’s guardianship of minors to complement the existing divorce decree’s child care arrangement. Your assets in a previous will may no longer be part of your estate and should be removed from the document, adding newly acquired assets where appropriate.
In most states, when you get a divorce after you make your will, any gifts to your former spouse are automatically revoked without affecting the remainder of your will. However, relying on state law to protect your ex-spouse from your inheritable assets is unreasonable. Also, if you do not want your former spouse to inherit your property, you probably don’t want them to be your will’s executor. It is wise to appoint a new executor and an alternate.
Many assets may pass outside your will through beneficiary designations. These account types include life insurance policies, retirement accounts like 401(k)s and IRAs, POD (payable on death) bank accounts, and TOD (transfer on death) brokerage accounts. Changing the beneficiary is usually fairly simple, but each account may have a different process, so do your research. You may also speak to a benefits consultant with the company holding the account to ensure you remove your ex-spouse and name a new beneficiary.
Certain qualified plans like pensions, 401(k)s, and employer-provided life insurance policies are governed by ERISA (The Employee Retirement Income Security Act). This federal law will override state law deeming a plan administrator must turn funds over to the plan’s documented named beneficiary. If your former spouse is still on the paperwork, they will inherit the account.
If you are the grantor of a trust, review the trustee, and if it is your ex-spouse, you will likely want to remove them. There may be exceptions to this trustee removal. For example, some spouses run a business together and may continue to use the trust to manage business assets. A special needs trust for a child may be another instance where an ex-spouse may remain a trustee because of the shared child. Your estate planning attorney can advise you on when to keep an ex-spouse as a trustee.
Real Estate Property
Whether the family home, a vacation beach house, or a lake cabin, real estate property will likely shift ownership in the divorce. Your estate plan will have to remove those properties that you no longer own and change the designations of the remaining properties.
Advance Directive or Living Will
Appoint a new healthcare representative in your living will If your ex-spouse is your current designation. Your estate planning attorney must either revoke your prior living will or make formal changes reflecting your state’s regulations for it to be a legally binding document.
Powers of attorney
If your ex-spouse is your designated durable financial or medical power of attorney, you will want to appoint a new individual(s). A financial power of attorney can designate a trusted family member or friend who you know to be competent and will best represent your interests. If you are ambivalent or unsure about who to turn to, you can select your lawyer or a licensed financial institution that routinely fills these roles.
The person you choose for your durable medical power of attorney must be assertive and strong-willed to advocate for your healthcare wishes when you are no longer able. This individual should live near you, or at least in the same state, as proximity can become critical. You can name the same person as financial and medical power of attorney, but this can represent a lot of time and effort for one individual. In some states, it is not permissible. You may name a family member, friend, or caretaker as your agent.
Depending on your estate plan type, you can make some changes to your will before your divorce is final or immediately upon the divorce filing. Explain to your attorney how you envision the new estate plan. Details of asset and property transfers gained or lost in the divorce can be added. Beneficiaries, executors, guardianship of minor children, property, and powers of attorney all require review and are likely to change. Your estate planning attorney can readily make the changes you desire so that your legacy continues to reflect your wishes accurately. We would love to help – contact our offices in Midway, Erie, and Franklin PA.