Estate Planning After Divorce

Talking about, and planning for Estate Planning After Divorce is generally considered an off-putting conversation, and is often afforded low-priority status for most individuals. This rings especially true for people going through the emotional and financial turmoil that is divorce and the necessary changes to an estate plan that must follow.  However, notwithstanding the chaos that undoubtedly accompanies spousal separation, updating your estate plan after divorce is one of the most important things a person can do in the months proceeding a divorce decree.

Failing to update your estate plan after a divorce may lead to unforeseen and undesired effects that will certainly have you rolling in your grave — including having a portion of your assets be distributed to your ex-spouse.  Below is a discussion of the three easy precautions freshly divorced individuals should take to ensure that their estate plan is up-to-date and reflective of their current life and wishes. 

Estate Planning After Divorce Step 1: Revoke Your Will and Make a New One.

A will serves as a guide for determining how a deceased individual wants their assets to be distributed, and is controlling upon death absent a revocation or superseding will.  Typically, individuals bequeath a portion (and in many cases, all) of their assets to their spouse during marriage — a desire that generally changes after divorce.  This means that if an individual passes away after a divorce prior to revoking their will, then their ex-spouse may inherit the assets provided to him or her during the course of the marriage.  

Though many states have passed legislation that provides for the automatic revocation of gifts made by a former spouse after divorce, it is not a good idea to rely solely on state law, as some state’s do not follow this general rule and, even those that do only follow it to the extent that there is a final decree of divorce — if you are still in the process of divorce, gifts to your spouse are valid.  States further differ regarding gifts made to relatives of your former spouse, i.e. gifts made to your former step-children.  Whether individuals want their former step-children to inherit from them upon death is a highly personal decision, and not one that should be left to chance.

Relying on state law may further create uncertainty about what happens to the property that you left to your former spouse when, according to state law, those gifts are automatically revoked by way of a divorce decree.  Though the general rule is that the property passes as though your former spouse had died before you, in some instances property may pass according to the laws of intestacy, i.e. as if there was no will at all.  These potential complications underscore the importance of creating a will in the first place, and should be avoided at all costs.

Assuming that you do not want your ex-spouse to inherit your property, you likely do not want them to be in charge of your estate, or be the guardian of your children, either.  Though states differ on how these situations are handled post-divorce, the safest way to ensure your current wishes are implemented after your death is to revoke your will and create a new one.  Luckily, revoking your old will is a very simple process, and can be accomplished by any number of ways.  A will may generally be revoked by physically defacing the physical in some manner, such as tearing it up, burning it, or writing on it.

Of course, for every will that you revoke it good practice to create a new one in its place. Your new will will supersede the old, and will reflect your current desires post-divorce.

Estate Planning After Divorce Step 2: Update Your Beneficiary Designations.

Though having a will is a critical part of planning for your estate, some assets are nonetheless not covered within its purview.  In fact, some of  your most valuable assets may pass outside of a will to beneficiaries named on paperwork filed with a bank or insurance company.  Therefore, when updating your will following a divorce. it is equally important to update for beneficiary designations on your other assets, including your life insurance policy, retirement accounts, pay-on-death bank accounts, and transfer-on-death brokerage accounts.

Much unlike state law pertaining to wills, many “qualified plans,” such as 401k’s, pensions, and employer provided life insurance policies are governed by the Federal Employee Retirement Income Security Act (ERISA).  ERISA is essentially a federal law that, among other things, requires a plan administrator to turn funds over to the beneficiary named in the plan documents, regardless of a divorce decree or contrary state legislation.  

To change your beneficiary designations for these kinds of assets, simply contact your bank or insurance company and ask for a representative to assist you with the process.  

Estate Planning After Divorce Step 3: Make New Powers of Attorney.

Powers of attorney are documents that authorize someone to act on your behalf in the event you become incapacitated or otherwise unable to render your own decisions.  Powers of attorney often cover both medical and financial situations, and are a big part of the estate planning process.  In the event that you already have powers of attorney that give your former spouse authority to make decisions on your behalf, it is imperative that you revoke them and create new documents.