Estate Planning And Divorce: Protect Your Financial Future
Estate planning might not be the first thing on your mind after a divorce, but it’s essential to all your post-divorce considerations. Life’s course changes, and with it, our responsibilities and priorities. Divorce is one of those moments where you need to revise your estate plan to reflect new circumstances.
Assess your financial inventory
A detailed inventory of assets will help solidify your understanding of what you are dealing with. Remember, the value of your assets isn’t static — keeping an updated inventory ensures that your estate plan will continue to reflect your financial reality. Think real estate, investments (liquid and illiquid), and retirement accounts.
Identify beneficiaries and consider changing your will
Chances are, your ex-spouse was listed as a beneficiary on various financial accounts and insurance policies. Update these designations to reflect your new plans, wishes, and circumstances. Remember that changing the title on an account is separate from updating beneficiaries or removing transfer on death designations.
A comprehensive estate plan includes a will that directs the distribution of your property —make updates with legal counsel to ensure they are valid and enforceable. Review and make necessary changes to your will, or create a new one if you don’t have an existing document.
Estate planning can be complex and state-specific, so consider working with an estate attorney who can help you navigate how laws work where you live.
Re-evaluate your healthcare directives and powers of attorney
Medical and financial powers of attorney (POA) are essential documents in estate planning. Your ex-spouse may be your agent under these documents — reassess and update as needed. Choose individuals you’re confident will honor your wishes regarding medical care and financial management. Consult with an attorney to update or create new healthcare directives and powers of attorney.
Secure child and spousal support
Spousal and child support can vary greatly depending on personal circumstances, the state where you live, length of marriage, etc. Children and former spouses entitled to support should be named in your will to prevent disputes or misunderstandings. This is particularly crucial if your children are minors or if spousal support is a long-term commitment post-divorce. Sometimes, one party in a divorce must carry a life insurance policy that names the ex-spouse as a beneficiary to meet the obligation of spousal or child support.
Update your trusts and consider new estate planning tools
Your financial situation may have changed following the divorce, which could warrant additional estate planning tools, like setting up trusts or accounts for your children’s college funds or creating a special needs trust for a dependent with a disability.
If you had a trust as part of your pre-divorce estate plan, your ex-spouse was likely named as a beneficiary or played a significant role in the trust’s execution. Review and update existing trusts to align with your new goals and beneficiaries.
Revisit your guardianship arrangements
If ex-spouses share custody, it may not be necessary to name your ex-spouse outright as a guardian — custody arrangements usually assume this. If custody is not split equally, it’s important to understand how naming guardians in your will interacts with the custody arrangement.
A divorce may mean that you’re reevaluating your backup guardians (e.g., people who would care for your children if you and your ex-spouse cannot). It’s time to discuss backup guardianship candidates with your ex-spouse and update your estate planning documents accordingly.
Understand the implications of taxation and estate settlement
Laws around inheritance, estate, and gift taxes vary by location and change over time. After a divorce, your tax obligations may alter significantly, affecting how your estate should be structured and managed. For example, you may have an estate that is now taxable in the state where you live or at the federal level, and it wasn’t before – or vice versa.
Familiarize yourself with the tax implications of your estate planning and divorce decisions, such as changing beneficiaries and transferring assets, as these actions can have unforeseen tax consequences.
Organize and record your estate plan details
Once your estate plan is in place, it’s essential to keep all documents organized and in a secure but accessible location. This could include wills, trust agreements, deeds, insurance policies, and documenting your digital or online accounts so your heirs can access these resources when the time comes.
Consider sharing the location and details of your estate planning documents with trusted individuals who have a role in your estate, such as your attorney, family members, or financial advisor. Keeping your plan updated and accessible is as important as having one in the first place.
Review your estate plan regularly
Your life will continue to evolve, as will your relationships and financial situation. An estate plan is not a one-and-done affair but a dynamic tool that should grow and change with you. Set a schedule for regular reviews—experts recommend yearly—and update your plan as needed.
Remarriage, the birth of a child, changing tax laws, significant changes in financial situation, or the passing of an heir or beneficiary are everyday life changes that indicate it’s time to update your estate plan. A comprehensive and up-to-date estate plan gives you peace of mind, knowing that your post-divorce financial health is secure and your loved ones are provided for.
Ensuring that your financial future aligns with your post-divorce reality is a significant step towards healing and moving forward. Protecting your estate is about finalizing decisions and adapting and revisiting the plan as your life changes.
If you have adult children, it’s also a good time to discuss their personal estate planning. When you already have the documents, make the appropriate updates (e.g., removing a deceased parent as their named agent or discussing who best to utilize as an agent post-divorce).
