5 Changes To Make to Your Estate Planning for Divorce that Help Protect your Assets and Choices
If you are going through the divorce process, even an amicable separation, there are a lot of details to address. With so many major life changes taking place, it’s easy to forget to update your estate plan. For those facing complex asset division in a divorce without an estate plan, it can be tempting to put the estate plan on a back burner – but you shouldn’t.
Neglecting to update your estate plan after or during a divorce can have potentially terrible consequences. And it’s not advisable to wait until the divorce is final to rework your plan—you should update it as soon as you realize the split is inevitable.
Why is estate planning important before or during the divorce process?
Your marriage is legally in full effect until the divorce process is final. If you die or become incapacitated while your divorce is pending without changing your estate plan, your soon-to-be ex-spouse could wind up with complete control over your life and assets. Unless you want him or her to have that power, you need to take action as soon as possible.
Keep in mind that some states have laws that limit your ability to change your estate plan once your divorce is filed. Just as you work with your family law attorney on the asset division in divorce, you also want to consider the following changes to your estate plan.
1. Change Your Power Of Attorney Documents
Unless you want the person you are removing from your life to make all of your legal, financial, and medical decisions in the event of your incapacity, updating your power of attorney documents is vital. 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 if you become unable to make such decisions yourself. Consider your major assets such as a home, business, vehicles, and investment accounts.
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. And since most people typically name their spouse as their decision maker in these documents, you need to take action even before the divorce process is finalized. Then grant this authority to someone else, especially if things are anything less than amicable between the two of you.
2. Change Your Beneficiary Designations
As soon as you know you are getting divorced, you should update the beneficiary designations for assets that do not pass through a will or trust, such as life insurance policies and retirement plans. Failing to update your beneficiaries can lead to serious trouble down the road, and unfortunately, we see this happen all the time.
If you get remarried following your divorce, for example, but you haven’t changed the beneficiary of your 401(k) to name your new spouse, the ex you divorced 10 years ago could end up with your retirement account upon your death. And since there are often restrictions on changing beneficiary designations once a divorce is filed, the timing of your beneficiary change is particularly critical.
In most states, once either spouse files divorce papers with the court, neither party can legally change their beneficiaries without the other’s permission until the divorce is final. With this in mind, you may want to consider changing your beneficiaries before filing divorce papers. Post-divorce you can always change them again to reflect whatever is determined in the divorce settlement.
It’s important to talk with your attorney to see if changing beneficiaries is legal in your state—and whether it’s in your best interest. And if naming new beneficiaries is not an option for you now, once the divorce is finalized, it should be a high priority. In fact, put it on your to-do list right now!
3. Create a New Will
You should create a new will as soon as you decide to get divorced because once divorce papers are filed, you similarly may not be able to change your will. Since most married couples name each other as their executor and the primary beneficiary of their estate, it’s important to name a new person to fill these roles as well.
When creating a new will during a divorce, rethink your asset division upon your death. This likely means naming new beneficiaries for any assets that you’d previously left to your future ex and his or her family. Keep in mind that some states have community property laws that entitle your surviving spouse to a certain percentage of the marital estate upon your death, regardless of what your will says. If you die before the divorce is finalized, you probably won’t be able to entirely disinherit your surviving spouse through the new will.
Because of the time-sensitivity involved, creating your new will as soon as you realize divorce is inevitable is crucial. It helps to ensure the proper individuals inherit the remaining percentage of your estate should you pass away while your divorce is still ongoing.
If you choose not to create a new will during the divorce process, you can’t assume that your old will is automatically revoked once the divorce is final. State laws vary widely concerning how divorce affects a will. In some states, your will is revoked by default upon divorce. In others, unless it’s officially revoked, your entire will – including all provisions benefiting your ex – remain valid even after the divorce is final.
4. Amend Your Existing Trust Or Create A New One
If you have a revocable living trust, it’s important that you also update it. Just like wills, the laws governing the if, when, and how you can change a trust during a divorce vary. In addition to reconsidering the asset division with your soon-to-be-ex spouse through the trust, you’ll also want to replace him or her as successor trustee, if they are so designated.
If you don’t have a trust in place, it’s important to prioritize creating one, especially if you have minor children. Trusts provide an array of benefits that are unavailable with a will, and they’re particularly well-suited for blended families. If you or your spouse eventually get remarried—and perhaps have more children with new spouses—trusts are an invaluable way to protect and manage the assets you want children to inherit.
For example: If you die or become incapacitated while your kids are minors, you can name someone of your choosing to serve as successor trustee to manage their money until they reach adulthood through your trust. This makes it impossible for your ex to interfere with their inheritance.
5. Revisit Your Estate Plan Once Your Divorce is Final
If your goal is to limit your spouse’s control over your life and assets should you die or become incapacitated before divorce is final, then reviewing your estate plan is important. The individuals to whom you grant power of attorney, name as trustee, designate to receive your 401(k), or add to your estate plan in any other way while the divorce is ongoing are often just temporary.
Once the divorce is final and your marital property has been divided up, be sure to revisit all of your estate planning documents and update them accordingly based on further life changes. From there, your estate plan should continuously evolve with your life circumstances, particularly following major life events, such as getting remarried, having additional children, or when family members pass away.
Asset Division in Divorce Impacts Your Estate Plan, So Take Action Soon!
Although your estate planning during divorce seems low priority, it’s wiser not to delay – especially if the process has been contentious. When you realize that divorce is certain, it’s already time to take your first steps.
If you delay updating your estate plan, it can make it legally impossible to change certain parts of your plan. Staying ahead of the game is important. And if you’ve yet to create any estate plan at all, an impending divorce is the perfect time to finally take care of this crucial responsibility, especially when there’s complex asset division in your divorce.
If you feel overwhelmed and could use some guidance, reach out to us! Artisan Law Firm is an experienced and empathetic partner to help you with estate planning for divorce.
