You have recently divorced your spouse, and the judge has signed the divorce decree. Now what? Although you may feel you have spent enough time and money on lawyers, there is one last attorney you need to talk to: an estate planning attorney. If you and your former spouse had estate planning done together previously, you must come in and make changes to avoid having your hard-earned money and property distributed in a way you did not intend when you pass away. If you have not done any planning, now is the perfect time to get your affairs in order.
When you meet with the estate planning attorney, you must bring all necessary documents, including a copy of your divorce decree. This document will help determine what obligations need to be provided for in your documents, what accounts or property you now own, and how you own those accounts and property.
Spousal or child support obligations may necessitate purchasing life insurance should you pass away before fulfilling the entire responsibility. If there is a child support obligation, it may be wise to have the life insurance policy owned by a trust. The trustee could provide distributions to the minor children instead of a lump sum payout to your former spouse. (If you have not incorporated this into your decree, make sure your former spouse agrees to this strategy!) They may not use the funds as intended if they receive an outright distribution.
The divorce decree will also contain a section on the division of your marital property. This is helpful information to provide to the estate planning attorney to present an accurate picture of your current property and financial accounts.
In addition to identifying the accounts or property, you now own, how you hold them is incredibly important. Ownership of accounts or property previously owned by you and your former spouse as joint tenants or tenants by the entirety has more than likely changed to ownership as tenants in common under state law. This is important because before your divorce if you had passed away, your now former spouse would have likely received your interest in the account or property automatically. However, now that the ownership has changed to tenants in common when you pass away, your interest will go to your heirs. As part of your estate planning, you can choose who will receive your interest and how they will receive it. If you don’t plan, a court will transfer the interest according to state law, which may not coincide with your wishes.
Depending upon the state in which you live, divorce can have a varying impact on your will. In some states, a divorce revokes all provisions in your will that benefit your former spouse. Additionally, some state laws also rescind the appointment of your former spouse as the personal representative. However, in the District of Columbia, a divorce revokes the entire will. Should you die before executing a new will, the law will determine who receives your money and property. Even if state law revokes gifts to your former spouse, the law may or may not cancel gifts you made to your former spouse’s family, making it very important to revise this document as soon as possible to incorporate any changes you wish to make.
Suppose you and your former spouse previously had joint planning. In that case, it is essential to review it and make any desired changes, like wills or gifts to your former spouse’s family, as beneficiaries of a trust may or may not be revoked as a result of the divorce. Similar to wills, the laws regarding what happens to a provision in a revocable living trust vary. Some state laws revoke all provisions relating to the former spouse, while others leave the trust intact.
In some states, filing for divorce revokes the former spouse’s appointment as an agent (the person who would act on your behalf) under a financial power of attorney. However, in other states and the District of Columbia, a divorce does not revoke your spouse’s ability to act as your agent. Regardless, suppose there are any outstanding powers of attorney with third parties. In that case, you need to inform them of your divorce and provide them with a revocation so they are on notice that your former spouse is no longer authorized to act on your behalf.
Like other estate planning documents, state laws vary as to whether or not your former spouse will still be able to make medical decisions if you cannot make or communicate them yourself. Some states will revoke the designation of your former spouse as your agent for medical matters due to the divorce, while others do not. Regardless, it is imperative to keep this document up to date and to provide it to the necessary healthcare professionals.
Because a life insurance policy is a contract with a third party, a divorce can sometimes complicate things. If you named your former spouse as a beneficiary of the policy before your divorce, state law varies as to whether that designation is automatically revoked. Even if the appointment is revoked under state law, it is crucial to change the beneficiary designation, so the company is on notice of your wishes. In some cases, although the former spouse is no longer entitled to the life insurance proceeds, if they were not informed, the benefit will be paid out to the named beneficiary (former spouse), and it will be the responsibility of the rightful beneficiary to sue and collect the proceeds from the former spouse. This may not be an issue in some instances, but it could create a lot of avoidable drama in others.
The designation is not automatically revoked for accounts governed by the Employee Retirement Income Security Act of 1974 (ERISA). To ensure that your former spouse does not receive the benefits, you must affirmatively change the designation, provided that your divorce decree does not state otherwise.
As a newly single person, you are now in complete control of your money and property. Without an estate plan, state laws will determine what happens to your hard earned money and property. If you already have estate planning documents in place, you need to review them when circumstances change, such as in the event of divorce. Even if state law revokes gifts to your former spouse, you must ensure that the alternate plan built into your documents is still what you want. Give us a call today so we can schedule an appointment to protect your new future and those you love, and don’t forget to bring the divorce decree.
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14425 Falcon Head Blvd
Austin, TX 78738