Potential Estate Planning Issues
Following Divorce
Most people know how important it is to have an estate plan;
however, in the context of a divorce, estate planning issues can become more
complex and critical. Time is of the essence because you do not want your
ex-spouse, or soon to be ex-spouse, in control of your estate or making a claim
against your estate.
The act of filing a divorce complaint does not revoke your
spouse’s rights with regard to your estate. Therefore, it is important to
consider the various estate planning issues that can arise during and after a
divorce.
How Does the Divorce Effect My Estate Plans?
In order to address estate planning issues following
divorce, you must begin addressing the estate planning issues prior to and
during the divorce.
As discussed above, filing a divorce action does not
prohibit your spouse from asserting a claim against your estate should you die
during the divorce. The only way to prevent your spouse from inheriting your
assets or making a claim against your estate is to update your estate plan by
modifying your estate documents.
Potential Estate Planning Issues During Your Divorce
Several problems could occur during the divorce process.
Estate planning issues that may arise during your divorce include:
- Your spouse could act under a healthcare power of attorney to make medical .decisions on your behalf.
- Your spouse could take action under a general power of attorney.
- Your spouse an access jointly owned accounts to withdraw or transfer funds.
- Your spouse will automatically become the owner of a joint account.
- Change beneficiaries on some jointly owned financial accounts or insurance policies.
- Your spouse could be the administrator for your estate and take control of your children’s inheritance.
For the above reasons and more, you must address estate
planning issues before your divorce is completed rather than after. The easiest
way to address these, and other, estate planning issues is to update your
estate plan and modify your estate forms.
Checklist for Estate Planning Issues in a Divorce Situation
· Healthcare Power of Attorney and Living Will
Prevent your spouse from making healthcare decisions on your
behalf by updating your healthcare power of attorney (or drafting one now) to
appoint another person to make these decisions if you are unable to do so.
· General Power of Attorney
Under a general power of attorney, your attorney-in-fact can
perform whatever actions you can perform in your name. If you named your spouse
as your attorney-in-fact, you need to revoke your current general power of
attorney and draft a new general power of attorney naming a trusted person as
your new attorney-in-fact.
· Update Your Will
Your will is extremely important and is one estate planning
issue you must not ignore or procrastinate changing. Among other things, your
will appoints the person who has the responsibility of administering your
probate estate.
Most spouses name each other in their wills as their
executor or personal representative. To prevent your spouse from having control
over your estate, update your will immediately when you separate (even before
the divorce complaint is filed).
Beneficiary Designations
Beneficiary designations are another estate planning issue
that most people do not consider as they move through the divorce process. Most
spouses list each other as their beneficiaries; therefore, changing your
beneficiary designations should be done as soon as possible. Some, but not all,
of the following documents should be reviewed and updated to remove your spouse
as a beneficiary:
- Life insurance policies
- Individual Retirement Accounts
- Annuities
- Employer retirement plans and other benefits (i.e. employer provided life insurance, disability insurance, etc.)
- Health Savings Accounts
- Investment Accounts
- Revocable Trusts
- Irrevocable Trusts
- Transfer on Death (TOD) accounts
- Payable on Death (POD) accounts
- Safe deposit boxes
·
Any other account or asset that has
a beneficiary designation
Trust Agreements
In addition to removing your spouse as a beneficiary in any
trust agreements, you should also remove him or her as the trustee. It is
common for spouses to name each other as trustee or co-trustee. Until you
remove your spouse as a trustee, he or she can continue to take whatever
actions the trust permits.
Estate Planning Issues and Divorce Decrees
When your attorney is negotiating a divorce settlement or
arguing for what should be included in the final divorce decree, the attorney
needs to ensure that language is included in the final order regarding the
rights of each spouse with regard probate estates.
This is a key estate planning issue to address. The final
divorce decree should state that each spouse is barred from making any claims
against the estate of the other spouse and each spouse’s rights with regard to
the other spouse’s estate or future property are void.
With careful attention to detail, estate planning issues can
be avoided; however, you must begin right now rather than waiting until your
divorce is finalized.
