Going through a divorce is one of life’s major events, and one that can leave you feeling battered and bruised. Because of this, the last thing on your mind during this difficult time is likely to be your estate plan. Yet this is one time when you absolutely need to address the issues associated with updating your estate plan. It is likely your divorce caused major changes in your personal finances as well as your overall planning objectives. First and foremost, it is highly likely you no longer want your ex to be the beneficiary of your life insurance or retirement pension. If you have children, it is even more important that you update your estate plan in order to provide for and protect them.
The top five estate planning issues you must consider following your divorce include:
Life insurance and retirement beneficiaries must be changed following your divorce. Unfortunately, far too many people believe a divorce automatically cancels out estate plans which were in place before your divorce, however in most all cases, it does not. Suppose your prior estate plan left everything to your spouse in the event something happened to you. While you were married, that would have been a reasonable plan, and you would likely have been confident your spouse would use your life insurance proceeds to take care of your minor children. There are far too many cases where a divorce occurred and one spouse failed to make the necessary beneficiary changes, leaving life insurance and retirement benefits to an ex-spouse rather than to his or her children. If your children are young, your estate plan might benefit from setting up a trust for the children, naming a trusted friend or family member as the trustee who will oversee the estate.
If you have minor children, you must have custody or guardianship directives stated in your estate plan. Perhaps you are fine with your ex taking custody of your children in the event of your death, but, in some cases, the other parent may not be the best person to take custody of the children. An ex-spouse may have issues which make them an unfit parent, and, in this instance you would want to designate a guardian for your children. It is important to know that your wishes are not entirely binding on a court of law, but could carry a significant amount of weight with the judge.
Your remarriage could affect your estate plan even further. If you remarry following your divorce, there is one document which may not have been present in your original estate plan, but could be essential now. This document is a premarital agreement. Any person who remarries may want to ensure that specific property or assets he or she had prior to the remarriage go to the children rather than the new spouse. If you fail to specifically exclude certain property you owned prior to your remarriage through a premarital agreement, it could, under your state’s laws, go directly to your new spouse (and his or her children).
It is important to look at the changes in your taxes caused by your divorce. If your divorce was considered one of “high net worth,”—or even if it was not–there may be tax issues to look at.
All the documents in your estate plan must be looked at carefully following your divorce. This includes powers of attorney, revocable trusts, your will, the beneficiary designations on your life insurance and retirement pension, your living will and health care power of attorney, and any bank accounts which have a “pay on death” provision. You will also need to look at all the titles on your property, as many people fail to re-title the assets awarded to them in a divorce, assuming the divorce order was sufficient.
While there are many times you should re-evaluate your estate plan, following a divorce could be one of the very most important times. Speaking to your estate planning attorney is not complicated, and could well be the best thing you do, following your divorce.