Estate Planning Following Divorce
Your divorce was recently finalized and the judge has signed the divorce decree. Now what? Although you may feel as though you have spent enough time and resources on attorneys, there is still at one last attorney you need to talk to: an estate planning attorney. If you and your former spouse had estate planning done together previously, it is necessary for you to come in and make changes to avoid having money and property that was just awarded to you be distributed in a way you did not intend when you pass away. If you have not done any planning, now is the perfect time to get your affairs in order through estate planning following divorce.
When you meet with the estate planning attorney, it is crucial that you bring all necessary documents, including a copy of your divorce decree. This document will be helpful in determining what obligations need to be provided for in your documents, what accounts or property you now own, and how you own those accounts and property.
What Is in a Divorce Decree?
Spousal or child support obligations may necessitate purchasing life insurance should you pass away before fulfilling the entire obligation. If there is a child support obligation, it may be wise to have the life insurance policy owned by a trust allowing distributions to the minor children by a trustee instead of a lump sum payout to your former spouse, who may or may not use the funds as intended. (If this is not incorporated into your decree, make sure your former spouse agrees to this strategy!)
The divorce decree will also contain a section on the division of your marital property. This is helpful information to provide to the estate planning attorney to present an accurate picture of your current property and financial accounts.
In addition to identifying the accounts or property you now own individually, how you have them titled is incredibly important. Ownership of accounts or property previously owned by you and your former spouse as joint tenants or tenants by the entirety has more than likely changed to ownership as tenants in common under state law. This is important because before your divorce, if you had passed away, your now former spouse would have likely received your interest in the account or property automatically. However, now that the ownership has changed to tenants in common, when you pass away, your interest will go to your heirs if proper designations are placed on the accounts. If you fail to do any planning, the interest will be transferred according to state law, which may not coincide with your wishes. As part of your estate planning, you can choose who will receive your interest and how they will receive it.
What Effect Does the Divorce Decree Have on an Existing Estate Plan?
Last Will and Testament
Depending upon the state in which you live, divorce can have a varying impact on your will. In some states, a divorce revokes all provisions in your will that benefit your former spouse. Additionally, some state laws also revoke the appointment of your former spouse as the personal representative. However, in the District of Columbia, a divorce revokes the entire will. Should you die before executing a new will, the law will determine who receives your money and property. Even if the gifts to your former spouse are revoked, the law may or may not revoke gifts you made to your former spouse’s family, making it very important to revise your estate planning documents as soon as possible to incorporate any changes you wish to make.
Revocable Living Trust
Similar to wills, the laws regarding what happens to a provision in a revocable living trust vary. Some state laws revoke all provisions relating to the former spouse, while others leave the trust intact. If you and your former spouse previously had joint planning, it is important to review it and make any desired changes, since like wills, gifts to your former spouse’s family as beneficiaries of a trust may or may not be revoked as a result of the divorce.
Financial Power of Attorney
In some states, filing for divorce revokes the former spouse’s appointment as agent (the person who would act on your behalf) under a financial power of attorney. However, in other states, and the District of Columbia, a divorce does not revoke your spouse’s ability to act as your agent. Regardless, if there are any outstanding powers of attorney with third parties, it is important for you to inform them of your divorce and provide them with a revocation so they are on notice that your former spouse is no longer authorized to act on your behalf.
Medical Power of Attorney
Like other estate planning documents, state laws vary as to whether or not your former spouse will still be able to make medical decisions for you if you are unable to communicate them yourself. Some states will revoke the designation of your former spouse as your agent for medical matters as a result of the divorce, while others do not. Regardless, it is incredibly important to keep this document up to date and to provide it to the necessary healthcare professionals.
Because a life insurance policy is a contract with a third party, a divorce can sometimes complicate things. If you named your former spouse as a beneficiary of the policy prior to your divorce, state law varies as to whether that designation is automatically revoked. Even if the designation is revoked under state law, it is important to change the beneficiary designation so the company is on notice of your wishes. In some cases, although the former spouse is no longer entitled to the life insurance proceeds, if they were not informed, the benefit will be paid out to the named beneficiary (former spouse), and it will be the responsibility of the rightful beneficiary to sue and collect the proceeds from the former spouse. This may not be an issue in some instances, but in others, it could create a lot of avoidable drama.
For accounts governed by the Employee Retirement Income Security Act of 1974 (ERISA), the designation is not automatically revoked. In order to ensure that your former spouse does not receive the benefits, you must affirmatively change the designation, provided that your divorce decree does not state otherwise.
You Need An Estate Plan Now More Than Ever
As a newly single person, you are now in full control of your money and property. Without an updated estate plan in place, the state laws could determine what happens to your hard earned money and property. If you already have estate planning documents in place, you need to review them when circumstances change, such as in the event of divorce. Even if gifts to your former spouse are revoked under state law, you need to make sure the alternate plan built into your documents is still what you want. Visit our website or give us a call today so we can schedule an appointment to protect your new future and those you love, and don’t forget to bring the divorce decree so we can make sure your wishes are honored through proper estate planning following divorce.