Divorce is not easy. It’s not only a difficult time emotionally, but you also have a lot to do and many decisions to make. I am going to add one more task to your “to do” list. You need to address your estate plan. It could be the plan deep in your filing cabinet that you and your current spouse executed 10 years ago or the one you never got around to signing. Either way, take care of it now.
While the divorce is ongoing, your current spouse has certain rights. You want to make sure you meet your legal obligations to your spouse while exercising as much control over your assets as possible. If you die or become incapacitated prior to the divorce being finalized, you want to retain as much control as possible. Below are eight things you need to do:
1. Update your healthcare proxy.
If you are in a car accident and end up in the intensive care unit (ICU), who will make healthcare decisions for you? Chances are you have a healthcare proxy naming your spouse as the decision maker, which may not be what you want when you are in the midst of a divorce.
2. Change your power of attorney.
You and your spouse probably executed powers of attorney at some point. Try to remember where they are, and if you cannot, ask the attorney who may have drafted them for you. If it is a durable power of attorney, it gave your spouse access to all of your accounts and assets now while you are competent. This includes access to assets in your name alone. This should concern you, particularly if the divorce is not amicable. You need to revoke that power of attorney, execute a new one and possibly provide notice to your current spouse of the revocation. This is typically done through your attorney.
3. Find out what you can and cannot alter.
In most states, you will not be able to change the beneficiary designation of life insurance, retirement accounts or plans—like your 401(k)—and pensions during the divorce. Those designations often must to stay in place until the divorce is final. The filing of a complaint for divorce places an automatic restraining order on your assets, which includes changing beneficiary designations.
4. Update your will.
If your state allows you to execute a new will, you should do so. Would you really want your current spouse in charge of your estate? Remove him or her as executor. And what about guardianship of minor children? You most likely will not be able to prevent your current spouse from being the guardian of your children if you pass away (unless he or she is determined by the court to be unfit); however, you can certainly name an alternate guardian.
5. Decide what to leave your spouse.
Should you disinherit your spouse? There are nuances to consider. In most states, you cannot disinherit your spouse completely. If you did, he would have the right to contest the will and receive a certain percentage of your assets. Often clients will leave the spouse only what he is entitled to receive under the laws of your state. This is easy and clean. Other clients take a more aggressive approach and disinherit him knowing that he will contest. They want to see their spouse have to fight for the money. The choice is yours.
6. Look at your prenuptial (or postnuptial) agreement.
If you have a prenuptial agreement, your divorce attorney hopefully reviewed it in light of your divorce (if not, consider new counsel). Make sure you also look at this document to see what your spouse is entitled to in the event of your death. Your new estate plan should be consistent with the terms of your prenuptial agreement.
7. Amend your trust.
If your state allows you to amend your revocable trust, do so immediately. As with the will, the key issue is what assets to leave your spouse. If there are gifts for her family, you may want to remove those. A large issue to consider is trusted provisions for young children. Do you want your spouse managing and having access to monies for your children? If you have minor children, you should have a revocable trust that will name someone of your choosing as trustee. Otherwise, if your spouse is their guardian, she will have the right to access and control your money for them if you die.
8. Revisit the plan after the divorce is finalized.
Estate planning during divorce is often a temporary measure. Once the divorce is finalized, you must revisit your estate plan and see what needs to be updated in light of the divorce. Also, do not overlook those beneficiary designations. I often come across estates of people who die never having updated their beneficiary designations. Their ex-spouse is still named to inherit the assets. This can result in litigation and serious unintended consequences.