As an estate planning attorney, I often find that individuals who have recently been divorced are not aware of the importance of revising their estate plan. After a divorce, particularly one that is long and drawn out, the last thing a client wants to do is spend more in legal fees. However, failing to promptly attend to estate planning can be financially disastrous.
Most married couples own the majority of their assets jointly. Upon divorce, that ownership is separated and each individual owns what they have left in his or her own name alone. If they die owning assets in their own name alone without a beneficiary designation, those assets must pass through probate proceedings in order to pass to their children or other heirs. It is important to revise your estate plan to not only avoid the expense of probate proceedings, but also to make certain your assets pass to the appropriate persons and in the appropriate manner.
Divorce judgments often require one of the spouses to convey real estate to the other spouse. Yet often the parties forget to sign the deed to complete the transfer. It is possible to convey the property by recording the divorce judgment with the register of deeds office. However, I do not know too many clients who would want their divorce judgment to become a public record for open review. Signing and recording the deed is one of the details that needs to be attended to and it is surprising how often it is left undone.
Another very important task after a divorce is to change your beneficiary designations on retirement plans. Retirement plans such as 401(k)s and 403Bs are subject to federal law (ERISA) and if you leave your former spouse as the beneficiary, that retirement plan may pass to your former spouse if he or she survives you. I find that most clients who have been through a divorce and have already provided their former spouse with half of their retirement plan do not want to leave the remaining half to them upon their death. Although you do not have the same issue with life insurance or individual retirement accounts (because they are not governed by ERISA), it is still important to update the beneficiary designations on those assets to make sure they pass to the appropriate persons.
It would be a good idea to revise your Will. If you have an old Will that names your former spouse as the person to receive your assets, the divorce will effectively terminate your former spouse’s interest in your assets. However, your change in circumstances may cause you to revise how you leave your assets to children or other individuals named in your Will. It is perhaps more important for you to update the guardianship provisions in your Will if you have minor children. If you die before your former spouse, and if your former spouse is the natural parent of your minor children, then your former spouse will have full custody of your children unless he or she is found to be unfit. However, you should still express your wishes about who should be appointed guardians for your minor children in case you survive your former spouse. The last surviving parent’s Will generally controls who will be appointed guardians for any minor children.
If you have younger children or other beneficiaries to whom you wish to leave your assets upon death and if they are not of an appropriate age or are otherwise unable to manage significant assets, then you should consider having a living trust. A living trust allows you to title assets in the name of the trust which you control for your lifetime. Upon your death, the assets owned by the trust or made payable to it by beneficiary designation do not have to pass through probate proceedings. Also, the trust can provide for ongoing management of the assets for the benefit of those beneficiaries either for their lifetimes or until they reach an age that you feel is appropriate for them to receive the assets outside of the trust.
Every individual also should have a Durable Power of Attorney to cover financial matters outside of a trust in the event that they are any unable to manage their own financial affairs at some point. In the Durable Power of Attorney, you can appoint one or more individuals to handle financial matters on your behalf. Similarly, everyone should have a Designation of Patient Advocate (also known as a medical power of attorney), so that they can appoint an individual to make medical decisions in the situation where they are not competent to do so themselves. In each of these documents, you should name alternate individuals to serve in case the first person appointed is unable to serve for any reason.
A good estate planning attorney will prepare or revise the appropriate documents, review your assets and coordinate how those assets are titled (owned), and advise you on how your beneficiary designations on life insurance, retirement plans, and perhaps investment accounts should be worded in order to avoid probate, minimize liability exposure, and assure that your assets pass the way that you intend and as efficiently as possible.
Just as many estate planning attorneys do not know how to handle a divorce for a client, many divorce attorneys are not knowledgeable about estate planning. A good divorce attorney who is not knowledgeable about estate planning will complete the asset transactions described in the divorce judgment and inform you of the importance of attending to an estate plan upon completion of the divorce proceeding.