Divorce and its Impact on Estate Planning

The spring and summer months are ripe with weddings, so much so that the time is frequently referred to as “wedding season”. 

But, did you know that there is also a “divorce season”?

Beginning in early January and peaking near the end of March, divorce filings spike.

“Many couples see the holidays as an opportunity to improve their relationship or, at the very least, ‘one last chance’. Plus, no one wants to upset the family right before a big celebration. Yet, once the holidays are over and nothing has improved, many people see it as time for a new beginning. This is why you see the start of so many divorces around this time of year,” said Jessica Showers, attorney at the Hammond Law Group, which practices only estate planning and elder law.

If you are facing major life changes, like a divorce, ask us about your estate planning options.

After March, divorce filings taper off until suddenly spiking again in August, suggesting there is some correlation between the winter and summer holidays.

Divorce is obviously a complex experience, both emotionally and practically. Disentangling your life from a spouse is multifaceted – and it can be easy to overlook certain elements. One area where people often feel it is ok to wait and make changes is estate planning. However, according to Showers, it can be a mistake to wait too long.

“If you are going through a divorce it is important to revisit your estate plan as soon as possible. There are several documents you’ll likely want to change right away, like your healthcare directives and Power of Attorney. For other documents you may want to wait until the divorce is finalized, since the divorce decree will tell us how properties are being divided between the parties.”

Powers of Attorney

Powers of attorney are some of the few documents that you can legally alter as you are going through a divorce. And, since medical personnel (or a judge) will likely defer to the primary person listed on medical or financial power of attorney, it is not a bad idea to revise these documents sooner rather than later. 

“Sometimes powers of attorney don’t include a provision that says, ‘If my spouse and I are divorced, they are determined to predecease me’, meaning they are no longer allowed to make personal decisions for me. So, if those documents do not contain that language, it’s possible that the medical personnel will look to your ex-spouse. I’ve found that most people who ended their marriages don’t want their ex being the person who makes those decisions for them. They usually prefer an adult child or another family member,” said Showers.

Beneficiary Designations

You likely have several legal documents with beneficiary designations, including 401(k)s, pensions, stocks, and life insurance policies. Since, in many cases, these assets pass outside of a will and a soon-to-be ex-spouse is named as the primary beneficiary, you may want to jump on making changes to those documents. However, care needs to be taken.

“There are some things that you should not do regarding your estate plan when you are in the middle of a divorce,” said Showers. “In the state of Colorado, we have a temporary injunction that automatically goes into action when all parties become aware of a divorce. Part of that injunction restrains both parties from cancelling, modifying, or allowing any policy of life insurance to lapse for nonpayment of premium that names either party or their children as beneficiaries.”

Even once the divorce is final, it is important to make sure that all changes to beneficiary designations align with the divorce decree.

“When someone is responsible for providing spousal support and/or child support, the divorce decree may stipulate that they maintain a life insurance policy naming the ex-spouse as beneficiary. The idea being that if something should happen, the ex-spouse will get the money they would have gotten through spousal support. So, we have to make sure that beneficiary designations are in line with what the court orders in the divorce action,” said Showers.

Wills

In most states, there is a provision in the law that voids benefits designated for an ex-spouse once a divorce is final.

“It’s known as a divorce revocation statue,” said Showers. “It outlines the law with the divorcing client’s intent to untangle themselves from an ex-spouse. So, it basically allows parties to say if we wrote a will and if we were divorced, then my spouse is determined to ‘predecease’ me for the purposes of administering my well. The idea is that if the person did not get around to redo a will and then got divorced, that statute would be triggered, and the assets would be passed to the next beneficiary.”

However, this statute only applies to the ex-spouse. It does not include anyone else mentioned in the will, relatives of the ex-spouse, for example.

In addition, you may still wish to leave something to an ex-spouse. If that is the case, it is important to rework a will to ensure that your wishes are clear.

Trusts

If you have established a trust prior to a divorce with your former spouse as a trustee, that trust remains in effect. Even if the trust provides language dealing with divorce or the automatic revocation law, it is still advisable to create a new trust tailored to your new situation.

“The biggest effect we see is when a married couple holds title to all of their property in a revocable living trust,” said Showers. “We have to work through retitling those assets out of the joint trust and into the individual trusts of the husband and the wife. Again, we want to make sure what we are doing is in line with the divorce decree. For example, if they owned two homes and the judge awarded home one to the husband and home two to the wife, we need to make sure that those properties are retitled appropriately. This is very important, so that neither husband nor wife get into trouble. If they retitle things inappropriately, they could be facing a contempt action – and nobody wants to go back to court if they don’t have to.”

Remember that most financial institutions will not know that a divorce has occurred. It is your responsibility to ensure that all essential documents are updated after a divorce. The most effective way to ensure that everything is handled efficiently is to consult with a trusted estate attorney as soon as possible when the divorce paperwork is filed.

To learn more about how Hammond Law Group can assist you with your estate planning needs, visit our “Get Educated” page.