Divorce and Estate Planning
Divorce and Estate Planning
It can happen to anybody and when the life you have built falls apart due to a divorce, it can be traumatic.
It means giving up on the life you used to know - family life, the home you shared with your spouse, financial security - even the very dreams that you held close to your heart.
And in this time of emotional and financial turmoil, it is really easy to overlook some things. Sadly, one of the often-forgotten details is the estate plan.
What is Estate Planning?
So, what is estate planning? It is the set of tasks that you undertake to prepare to manage your assets in the event of death or mental incapacity. It includes the bequest of assets, including insurance policies and retirement accounts, to heirs and the settlement of estate taxes.
An estate plan is meant to keep you in control of your finances and health care, allowing you to provide for your loved ones while ensuring that your affairs are in order. Ideally, your estate plan includes a will, trust and durable powers of attorney.
If you are considering a divorce, a review of your estate plan is imperative. You will want to determine if the arrangements you made remain appropriate. It is important to remember that the circumstances under which you created your original plan have changed with a divorce and you want to be sure everything is detailed in your plan to allow you to maintain control of your finances and healthcare as you originally planned.
Judicious Planning is Key
Keep in mind that a divorce only becomes final when the judge signs the final dissolution decree. In the unfortunate event that you were to pass away or become mentally incapacitated prior to this, your estranged spouse may legally be able to have control over you and your estate.
It may also entitle your spouse to most, if not all of your estate. Considering that a divorce usually stems from the fact that you no longer see eye to eye with your former spouse, this would indeed be ironic, not to mention tragic.
However, in the face of imminent divorce, you can be proactive and plan accordingly. Through properly executed estate planning documents, you can designate someone other than your spouse to have control over you (in the event of your incapacity) or your estate (in the event of your death). More importantly, if the divorce has been particularly acrimonious, you can limit your estranged spouse's rights as a beneficiary of your estate.
Let us review certain situations and what you can do to protect yourself if you are considering divorce:
You do not have a will. In most states, your spouse will automatically be given legal control of your estate and is entitled to at least half of your estate should you die or become incapacitated before the dissolution of the marriage. In fact, under the uniform probate code, your spouse will receive 100 percent of your estate if all the children are from the same relationship. If you do not have a will, do not wait until a divorce is final to draw one up.
You have a will or a trust. If you executed a will or have a similar estate planning document like a living trust, your spouse would normally be the designated executor and/or trustee. Additionally, he or she would probably be the primary or sole beneficiary of your estate.
Given the change in your circumstances, you definitely want to review your will or living trust to reflect this change. Most states have a provision called elective share statute which entitles your spouse, estranged or not, to a certain percentage of your estate. Through judicious planning, you can limit this entitlement so your estranged spouse does not receive more of your estate than you want.
Beneficiary designations. A large portion of your estate would consist of life insurance policies, 401K plans, IRA’s and annuities. These assets are not subject to a will but pass on to the specific designated beneficiary. It is typical to name the spouse as the sole beneficiary for these assets.
In the event of a divorce, a review and revision of beneficiary designations is in order. It is important to consult with an estate planning attorney, however, to ensure that everything is above board in terms of naming of beneficiaries. Under Federal law, the legal spouse must be named as sole beneficiary of all company pension, profit sharing and 401K plans unless he or she agrees otherwise, done through a form provided by your employer.
In the event of disability. If while your divorce is pending you are rendered unable to handle your affairs, such as in the event of an accident, stroke or heart attack, a guardian is appointed for you. Under normal circumstances, your spouse becomes your guardian unless you have designated another person in a written document.
It is completely understandable that you might not want your estranged spouse handling your affairs. There are specific procedures for designating a guardian that a qualified estate planning attorney will be able to advise you on.
Health Care Surrogate and Living Will. Many people execute this document and name their spouse as the person to make health related decisions in case they get sick or contract a terminal disease. In cases where a person did not make such an arrangement, the spouse is automatically designated as the one who will make these decisions.
However, if you are engaged in a bitter divorce, this might not be a situation you would want to find yourself in. With the help of an estate planning attorney, you should execute a revised Designation of Health Care Surrogate and, if applicable, a Living Will.
Power of Attorney. If you have gone through an estate planning exercise while married, you may have given your spouse a Durable Power of Attorney to handle your affairs. But there have been numerous instances that the power of attorney has been abused by the estranged spouse so the other party is left at a disadvantage - assets transferred to the estranged spouse’s name or loans taken out in the name of the spouse.
Child Custody. If you have sole custody of your children and you do not wish to have your ex-spouse raise them in the event of your untimely death because you feel he or she is a not good person or parent, it might be difficult to prevent this from occurring. The good news is the court makes its decision based on the best interests of the children.
If the surviving spouse is deemed unfit (history of child abuse or drug addiction), the court will appoint a guardian. It is best to be prepared for this by assigning a guardian you feel will raise your children well. It is important to consult with a lawyer to assist you should you want to do this.
3 Steps To Take
Having discussed different possible scenarios, let us recap the three steps you can take to ensure that your estate plan is aligned with your current life and wishes:
1) Revoke your will and make a new one. This is the very first step. If you do not have one, now is the best time to draw up one. This will be your opportunity to assign new and alternate beneficiaries, name a new executor and name a guardian for your minor children.
2) Update Beneficiary Designations. This is done for assets that pass outside of the will. These include:
Life insurance policies
Retirement accounts such as IRAs and 401(k)s
Pay-on-death bank accounts
Transfer-on-death brokerage accounts
To name a new beneficiary, you must request new documents from your bank, brokerage company, or employer and file them as soon as possible.
3) Make New Powers of Attorney. These are a big part of your estate plan. These give authority to someone enabling him to act on your behalf if it becomes necessary.
There are 2 essential powers of attorney: one for healthcare (medical decisions), and one for financial matters. If you have executed powers of attorney for your former spouse, revoke them and make new documents.
If you need help with the financial issues of your divorce, please contact me. I'm here to support and empower you through the whole divorce process!
Tags: divorce, women’s help, estate planning, divorce and finances, will, trust, power of attorney