Estate Planning After a Divorce

During a divorce, the immediate problems of property division and child custody overshadow any long-term planning. Trying to figure out which documents need to change and which need to be thrown out is time-consuming, yet essential to keeping your future secure.

Breaking Point
The legal end of a marriage often sparks disagreements over power of attorney or property distribution. Many people assume that legal powers granted to a spouse end at the start of a divorce; however, they actually last until a judge officially dissolves the marriage. Knowing this, it is important for people going through divorce to consider changing their estate documents immediately—even if they will have to update them again when they officially divide the property.

Amending Legal Documents
Always check with your legal counsel before making any changes to legal documents during a divorce; many documents have restrictions on alterations.

Changing a last will and testament is the first logical step in altering an estate plan after or during a divorce. Most states accommodate this view with provisions that automatically block a former spouse’s inheritance in a pre-divorce will. Despite this, it is wise to alter a will as soon as possible.

Changing a will during a divorce comes with some challenges. Unless owned outright by the person filing the will, the future of specific property is usually uncertain. Wills addressing marital property will require a second revision after the divorce finalizes. However, if a person intends to simply state that “all my property” should go to a person or trust, he or she should have no problem making immediate adjustments.

Much like a will, a person should change his or her power of attorney as soon after a divorce as possible. Even though power of attorney requires responsible action from whoever holds it, conflicts erupt when a family must submit to the judgment of a divorced spouse. Altering a power of attorney document is not a time-consuming process when simply switching one person for another.

Beneficiaries
One of the easiest estate documents to alter is the beneficiary document on insurance policies or retirement plans. Because of their general accessibility, it is often tempting for people to alter them as early into a divorce as possible. Always consult with a lawyer before making any changes to a retirement fund or insurance plan. Until a marriage ends, a husband and wife have fiduciary responsibilities for money management—by law they must do what is best for the spouse. Any action to remove access to benefits could be interpreted as a legal violation of spousal duty and used as leverage during divorce proceedings. Retirement funds should never be changed without both spousal and legal consent.

In addition to general liability, many divorce papers (particularly in California) are served with an automatic temporary restraining order (ATRO). Though the major concern of ATROs is child protection, they also contain a restriction on changing beneficiaries of life insurance policies or any other monetary agreements. Until a divorce is complete, all borrowing, selling, changes to property, changes to benefits and bank accounts should only be done with the direct approval of a lawyer.

It is important to note that while most states automatically block a former spouse from inheriting through an earlier will, they do not block beneficiary status. Retirement funds, life insurance policies, pensions and, if possible, irrevocable wills must be explicitly changed to remove a person as beneficiary.

Children and Second Marriage
As important as it is for a person to change estate documents to prevent an ex-wife or ex-husband from receiving property, it is also important that the property kept from them goes to the right people.

In particular, it is the concern of many parents in second marriages that the property they leave when they die will not be used as they hoped. Parents with children from a prior marriage often feel torn, wanting to provide for their spouses while still ensuring their children get some form of inheritance.

A Qualified Terminable Interest Property Trust (QTIP) is one method parents have found to provide for both surviving spouse and children from an earlier marriage. Property trusted to a QTIP pays out at a set rate to an initial beneficiary (spouse) and, upon his or her death, disburses its remaining property to the secondary beneficiaries (children). Though a surviving spouse does not get as much control over property as from a will, it does grant that spouse primary support for the rest of his or her life. Additionally, the QTIP’s ability to delay distribution makes it ideal for parents whose children are too young to inherit property.

Splitting Up the Estate
Divorce brings up a host of problems that no one wants to deal with. Unfortunately, estate planning is one of them. No matter where you are in life, it is essential to understand the estate options available to you and the changes that each can require.

If you are currently going through a divorce, consult a lawyer to check the legality of any changes you plan to make. If you have already finalized a divorce, review your estate documents immediately to ensure they reflect your wishes. With legal guidance, changes to your estate plan do not have to be another burden on your mind.