Estate Planning and Divorce: Key Considerations to Protect Your Future

Divorce is a significant life event that brings emotional and financial challenges, often requiring a complete reevaluation of your long-term plans. One critical yet sometimes overlooked aspect is updating your estate plan.

Ensuring that your estate plan reflects your new circumstances is essential for protecting your assets, honoring your wishes, and safeguarding your loved ones.

Here’s a comprehensive guide to the key considerations for estate planning during and after a divorce.

1. Update Your Will/Pour-Over Will

If your current Will names your ex-spouse as a beneficiary or executor, it’s time to make changes. In many states, divorce automatically revokes provisions favoring a former spouse, but this isn’t universal, and relying on state law can create ambiguities.

What to Do:

• Name new beneficiaries to inherit your assets.

• Select a new executor who aligns with your post-divorce preferences.

Why It Matters: Failing to update your will could lead to unintended outcomes, like your ex-spouse inheriting assets or your estate being tied up in disputes. Yikes!

2. Reassess Your Revocable Living Trust

Generally, most revocable living trusts have clauses within them that automatically revoke a marital or joint trust with your ex. Many states also invalidate any beneficiary designations of an ex spouse, but again, this isn't universal.

If you have a revocable living trust, you may need to amend it, at the minimum, or do a new one for your single self to reflect changes in your assets, beneficiaries, or successor trustees.

Key Steps:

• Remove your ex-spouse as a trustee or beneficiary if you had an individual trust. If you had a marital trust, you will more than likely have to do a new one just for you.

• Reassign control of trust assets to a trusted family member, friend, or professional trustee.

Why It Matters: A revocable living trust allows you to bypass probate, but if it’s outdated, it could cause confusion or legal challenges for your heirs.

3. Update Beneficiary Designations

Many assets, such as retirement accounts, life insurance policies, and payable-on-death accounts, pass directly to the named beneficiary, bypassing your will or trust. These designations are not automatically updated after a divorce. There are many cases where an ex-spouse is given these assets when the person really wants their new spouse or kids to receive their assets.

What to Do:

• Review and update beneficiary forms for all financial accounts and policies.

• Ensure your designations align with your overall estate plan.

Why It Matters: If your ex-spouse remains the named beneficiary, they could inherit these assets even if your will or trust specifies otherwise. Think of your ex on your boat with their pool boy!

4. Appoint a New Power of Attorney

A durable power of attorney gives someone the authority to make financial or legal decisions on your behalf if you’re incapacitated. Similarly, a healthcare power of attorney designates someone to make medical decisions for you.

Key Considerations:

• Revoke powers of attorney granted to your ex-spouse.

• Appoint a trusted individual, such as a family member or close friend, to these roles.

Why It Matters: Without updates, your ex-spouse could retain legal authority over your finances and medical decisions.

5. Protect Your Children’s Future

If you have children, updating your estate plan is essential to ensure their needs are met and their inheritance is secure.

What to Address:

• Guardianship: Specify who will care for your minor children if you’re unable to.

• Trust for Inheritance: Create or update a trust to control how and when your children receive their inheritance.

• Successor Trustee: Appoint a reliable individual to manage the trust on behalf of your children.

Why It Matters: Proper planning ensures your children’s future is protected and minimizes potential conflicts with your ex-spouse.

6. Consider Tax Implications

Divorce often involves significant changes in financial circumstances, which can affect your estate plan’s tax strategy.

Steps to Take:

• Work with a financial advisor or estate planning attorney to reassess tax implications for your estate.

• Adjust your plan to account for changes in your filing status, assets, and liabilities.

Why It Matters: Strategic tax planning can maximize the value of your estate and minimize financial burdens for your heirs.

7. Create a Post-Divorce Checklist

Divorce can be overwhelming, and updating your estate plan might feel like just another task on a long list. Simplify the process with a checklist:

• Review all estate planning documents, including wills, trusts, and powers of attorney.

• Update beneficiary designations on all accounts and policies.

Why Act Now?

Divorce is a life transition that brings both challenges and opportunities. By addressing your estate plan promptly, you can protect your assets, honor your wishes, and provide for your loved ones in the way you intend. Don't leave your ex to inherit your hard-earned wealth!