Navigating the complexities of divorce is, without a doubt, one of the most significant emotional challenges one can face. The intertwining of lives over years, and then the subsequent untangling, touches every facet of our being—from our hearts to our finances.
I’ve always held that life’s most trying moments, like divorce, are also the times when we need to act with utmost clarity. As a professional wealth advisor, I sincerely wish that this wasn’t a topic I had to broach with clients. I’d prefer discussions centered around proactive planning and joyous occasions. However, amidst the storm of divorce, overlooking your estate plan can be all too easy. Yet the consequences of neglecting this critical step are profound. So, while this might not be a conversation you ever anticipated having, it’s one well worth discussing.
In the following sections, we will explore the key areas of your estate plan that should be revisited after divorce. By addressing these aspects and working with an experienced estate planning attorney, you can safeguard your assets, protect your loved ones, and navigate the future with confidence.
Why You Need to Update Your Estate Plan If You Are Getting Divorced
To be blunt, an outdated estate plan could unintentionally grant your ex-spouse rights to your assets or decision-making powers. To protect your assets and ensure they’re allocated per your desires, it’s crucial to update beneficiary designations for life insurance and financial accounts as well as your will or revocable trust following your divorce. Additionally, you should reassess powers of attorney and healthcare directives to prevent an ex-spouse from retaining undue influence over vital decisions. Furthermore, divorce typically results in asset divisions and altered property ownership. Your estate plan must mirror these changes to avoid potential disputes later on.
Do You Need an Attorney to Update an Estate Plan?
Tackling this alone might seem feasible, but the expertise of an estate planning attorney can be invaluable. They provide insight into the intricate web of estate laws, which vary by state. An adept estate planning attorney can simplify these state complexities, ensuring your estate plan remains both compliant and reflective of your wishes.
Before making any changes to your assets or estate plan, it’s wise to consult with your divorce or estate planning attorney first to ensure that you are free to make the desired changes. You will want to confirm that any revisions meet the requirements imposed by the divorce.
An attorney is a prudent resource for avoiding possible pitfalls. They can advise on the optimal times to adjust your plan during the divorce, ensure all documents are legally sound, help in revising beneficiary designations, and give a well-rounded approach to your estate needs. They dictate asset distribution, validate your estate provisions, and guide custody decisions for minor children.
Read: 9 Estate Planning Mistakes Wealthy Families Make
Revisit These 7 Things in Your Estate Plan After Divorce
Embarking on the journey of revising your estate plan after a divorce can initially feel overwhelming, leading many to wonder, “What do I need to do first? Where do I start?”
An essential first step is to gain a clear understanding of what assets you own and how they are titled. Being well-informed about your assets sets the foundation for a smooth revision process. Then, follow the steps below to ensure you’ve safeguarded all of your assets.
1. Revoke Your Will and Make a New One
Divorce marks the beginning of a new chapter in your life. By creating a new will, you can ensure that your assets are distributed according to your preferences. Whether you wish to designate new beneficiaries or make adjustments to existing ones, a new will provides you with the flexibility and control over your estate plan that you need during this time.
2. Consider Updates to Guardian Provisions for Your Children
Navigating the waters of estate planning after a divorce isn’t just about assets—it’s about ensuring your children’s well-being is secured too. Revising guardian provisions in your estate plan is essential, and the dynamics between ex-spouses can heavily influence these decisions.
For ex-couples who maintain a harmonious relationship, it’s often easier to agree on joint decision-making or equal guardianship provisions. They can collaboratively make decisions that prioritize their children’s best interests, ensuring that both parents remain active and influential in their lives, even if one parent were to pass away prematurely.
However, situations can be trickier when one parent may not be deemed suitable for guardianship. In these cases, it’s crucial to be specific in your estate plan about who you’d want to assume custody and care of your minor children, whether it’s a close relative or a trusted friend. Detailing your concerns and providing evidence, where appropriate, can ensure your children’s guardianship aligns with their best interests.
In both scenarios, you’ll always want to consult with an estate planning attorney. They can provide guidance on framing these provisions in a way that offers your children the security and stability they need.
3. Designate New Beneficiaries
One of the most critical aspects of updating your estate plan post-divorce is reevaluating and designating new beneficiaries. This step ensures that your assets are allocated according to your current wishes and not outdated arrangements from when you were married. Failing to update beneficiaries can result in unintended individuals inheriting your assets, sometimes leading to complications and legal battles.
Here are a few areas where beneficiary designations are crucial:
- Life Insurance Policies: If your ex-spouse is the beneficiary of your policy, they will receive the payout upon your death unless you make changes.
- Retirement Accounts: This includes 401(k)s, IRAs, and pension plans. It’s essential to specify who will receive the funds in these accounts if you pass away.
- Bank Accounts: Especially those with “payable on death” or “transfer on death” designations. These accounts bypass probate and go directly to the named beneficiary.
- Real Estate with Joint Tenancy: If you owned property as joint tenants with rights of survivorship, the property would automatically go to the surviving owner.
- Investment Accounts: Brokerage accounts and other investment vehicles often have designated beneficiaries or transfer-on-death provisions.
- Health Savings Accounts and Flexible Spending Accounts: These can have named beneficiaries that should be revisited.
- Digital Assets: In our digital age, assets like cryptocurrency holdings, online business interests, or even social media accounts can have posthumous value and should have clear beneficiary designations.
When designating new beneficiaries, consider who aligns best with your current desires and the rest of your estate plan, be it your children, siblings, new partner, charitable organizations, or trusted friends.
4. Change Your Powers of Attorney
Powers of attorney are legal documents that grant specific individuals the authority to act on your behalf, especially concerning financial matters. During marriage, it’s common for spouses to designate each other as their primary agents in these matters. However, post-divorce, continuing to grant such authority to an ex-spouse may not be in line with your current wishes or best interests.
To ensure your estate plan accurately reflects your current preferences, it’s vital to revoke any previous powers of attorney that named your ex-spouse as an agent. In their place, you can designate a trusted family member, friend, or professional to oversee and manage your financial matters if you’re unable to do so.
Failure to address this aspect of your estate plan can lead to unintended complications. Imagine a scenario where you’re incapacitated, and your ex-spouse still retains the authority to make crucial financial decisions on your behalf—this is not an ideal situation for many.
5. Update Your Healthcare Proxy
One of the often-overlooked elements of estate planning after a divorce is the healthcare proxy. A healthcare proxy, also known as a medical power of attorney, grants a designated individual the authority to make healthcare decisions on your behalf should you become incapacitated and unable to make these decisions for yourself. During marriage, many individuals naturally designate their spouse as this trusted agent.
However, following a divorce, it becomes essential to review and update this designation. Your ex-spouse, who once was your go-to person for such critical decisions, may no longer be the individual you trust with your healthcare choices.
6. Review Your Prenuptial and Postnuptial Agreements
Prenuptial agreements, drawn up before marriage, and postnuptial agreements, crafted after the marriage has taken place, both play a significant role in shaping how assets are divided.
As you embark on the process of revising your estate plan after a divorce, it’s essential to review these agreements meticulously. They may contain clauses or stipulations that could impact how you should structure your will, trusts, or other estate planning tools.
Furthermore, if you plan to remarry, understanding the implications of existing prenuptial or postnuptial agreements becomes even more vital. They might affect financial arrangements with a new spouse or determine entitlements that need to be addressed in a new or updated agreement.
7. Consider Creating Trusts
Incorporating trusts into your revised estate plan can offer several advantages tailored to your new circumstances. Trusts serve as flexible tools that allow for specific control over asset distribution to beneficiaries. This can be especially valuable if you have concerns about ensuring financial protection for your children or other loved ones in light of your divorce.
One primary benefit of trusts is the direct control they provide over how and when beneficiaries receive assets. You can set conditions or timelines, which can be especially valuable if you’re worried about younger beneficiaries receiving large sums at an immature age. Trusts also offer a layer of financial protection, ensuring that your assets are used according to your exact wishes. And, depending on how the trusts are structured, trusts can shield your assets from potential future creditors or legal disputes.
Moreover, in the context of a divorce, trusts can serve as a mechanism to ensure that your ex-spouse doesn’t inadvertently gain control over assets intended for your children or other beneficiaries. By designating a trustworthy trustee, you can be assured that the assets within the trust are managed appropriately, regardless of any future relationships or changes in circumstances.
We’re here for you.
Amid life’s challenging chapters, taking steps to protect your legacy and the future of your loved ones is not just a legal necessity, but a testament to resilience, hope, and the unwavering love you hold for those who matter most.Don’t hesitate to reach out to your advisor today to discuss your next steps and ensure that your estate plan reflects your new reality.
