Estate Planning During and After a Divorce
By Liza Hanks
Finch Montgomery Wright
Divorce is almost never easy. And, on top of dealing with dividing up the property, negotiating child custody, dealing with housing, and general heart break, you also need to revise and revisit your estate planning documents. Almost no one wants a soon-to-be ex-spouse inheriting retirement assets or life insurance, or serving as an executor or a Trustee. But divorce is often done in steps, and can drag on for years, and because it is a legal process, there are some steps that you can take during a divorce, and some that you can only do after the divorce is final. In addition there are some steps a person can take without notifying their spouse or getting their consent, and other things that require notification and/ or consent. Here are some guidelines that I hope you will find useful during this sometimes messy process, focusing on the easy steps that most parents want to take.During a Divorce
After a petition for the dissolution of marriage has been filed with court, but before a divorce is final, certain restrictions are put in place to prohibit one spouse from transferring property out of community accounts before there's been a negotiated property settlement. In this interim period, a couple is still married, although living apart. Here's what a person can do with respect to estate planning in this interim period:
- Revoke an existing Will and Execute a New Will. Since a Will disposes of property only after death, executing a Will does not violate the restrictions on the transfer of property prior to a divorce.
- Nominate guardians for minor children. In a simple Will, a parent can nominate guardians for minor children. The catch is that a soon-to-be-ex is still a child's parent, and will get custody of minor children unless there's a good reason. Even so, I advise my clients to nominate guardians in case a child's other parent can't, or won't, take custody.
- Revoke existing Durable Powers of Attorney and Advance Health Care Directives. Most people do not want an almost-ex to be named as an Agent under either a Durable Power of Attorney or an Advance Directive. It's easy enough to revoke existing documents and execute new ones. Make sure that one of the powers you grant an Agent under a Durable Power of Attorney is the power to finish the divorce, in case of incapacity before it is final.
- Revoke their existing living trust. One spouse can revoke an existing living trust that holds community property. But this is subject to the terms of that trust and it requires that notification be filed and served on the other party.
- Create, but not fund, a living trust. One spouse can create a new living trust and specify how they want their property to be managed and distributed upon their death. But, the trust cannot be funded until the divorce is final (or unless the other spouse consents in writing). There is a benefit to creating such a trust. Should a client die before the divorce is final, the Will that they've executed will pour their assets into the new living trust after death. It's not a perfect solution, since a probate proceeding will be required, but at least that way a trust for children can be established and, when the divorce is final, the client will then be easily able to fund the trust with their separate property.
After a divorce is final, each party is free to create and fund living trusts, execute Wills, update Durable Powers of Attorney and Health Care Directives. In addition, it is really important to review and change beneficiary designations on payable on death accounts, retirement assets, and life insurance policies.
You should revisit:
- Bank and savings accounts
- Retirement, 401(k), IRA and other investment accounts
- Pay-on-death accounts
- Life insurance
- Homeowners’ insurance
- Car insurance
- Transfer-on-death brokerage accounts
Please don't assume that just because you've gotten divorced that any mention of your ex-spouse as a beneficiary is revoked automatically. That's not true, for example, for 401-k plans, which are governed under federal, not state, law and which are required to be distributed to the named beneficiary, even after divorce. Honestly, changing beneficiaries is easy, there's just no excuse not to take care of this task.
Divorce is never easy and the overlap between it and estate planning can be tricky. Please feel free to get in touch if you have questions about what to do with your existing estate documents during, or after, a divorce. You can email me at firstname.lastname@example.org or call me at 650/327-0088. You can also download my book, The Family's Guide to Wills and Estate Planning, for free.