A divorce is one of the most stressful events in one’s life. When the divorce is finally over, and the decree signed, there is a sense of relief that the ordeal is over. However, consideration of estate planning, and the need to update existing plans, is critically important after a divorce. Once the dust settles, and a settlement is reached (or, in rare cases, a Court orders the division of assets), the former spouses must consider their estate planning in the context of their new single status. A number of items need to be considered. These are just a few:
Updating beneficiary designations of life insurance, IRA’s etc. This is particularly important if the divorce agreement or order requires a spouse to maintain life insurance for the benefit of the other spouse for a period of time. The failure to maintain this coverage would be a violation of the court order.
Updating all joint accounts, typically to remove the name of the former spouse. A word of caution here is noteworthy. People will often add the names of their children to their bank accounts thinking that this will provide a simple transition in the event of their death. There are two major problems with this. The first is that you are subjecting your children’s creditors to your asset. The second is that, if you do not name all of your children, you will be passing this asset on to whomever you name as a joint owner, essentially disinheriting other children. We strongly discourage this approach.
Creating a new Will and/or trust
Update health care and financial powers of attorney
Consider who should be the guardian of minor children if the ex-spouse cannot
Update health care and financial powers of attorney
Consider who would manage the inheritance of children, particularly minors (so that the ex doesn’t get control. This requires the appointment of a trustee to manage a child’s inheritance under a trust created either under a will, known as a testamentary trust, or under a trust share created within your own trust.
One word of caution – we have witnessed several scenarios where the spouses agree that, post divorce, one spouse will remain the beneficiary of the other’s life insurance or other pay on death accounts. The insured spouse assumes that simply leaving the name of the ex-spouse on the beneficiary form will be sufficient. Unfortunately, this will not work. Arizona has a statute that states that all benefits payable to a former spouse are automatically revoked by the divorce. So simply leaving the ex-spouse’s name on the beneficiary form will not work as it will be concluded that he or she simply forgot to update. In this situation, the spouse must specifically update the beneficiary designation (or will or trust which provides for a benefit) post-divorce to clarify the intention to benefit the former spouse.
There are other areas of consideration for divorced spouses that are discussed at our counseling meetings. Do not put this on the back burner for too long or it will be forgotten!
