The divorce process can be long and expensive. Getting the final decree is the end of one big effort, which probably felt exhausting. Yet, the work doesn’t end once the divorce decree is signed. Once you have gotten divorced, it’s prudent to update your estate plan.
More Work After Divorce? Why Bother?
A divorce has a lot of legal consequences, most of them effect your children but the other impacted area is finances. Divorce changes how the law views assets (both yours and your ex-spouses), and the responsibilities of those ex-spouses.
To give an example: Most married couples will name their spouse as the first named trusted helper throughout their plan. A husband will usually name his wife as the Independent Executor, Agent under a Power of Attorney (both Financial and Medical), Successor Trustee, and so forth. All this changes during a divorce. Since in Texas, the law will treat the ex-spouse as “having predeceased” the testator. Meaning, even though the ex-wife may still be alive, for purposes of any probate or incapacity care, the law will automatically skip the ex-wife for the next named trusted helper.
Decision making aside, divorce may or may not change the beneficiary designation on certain assets (retirement, etc.). Therefore, in order to ensure that your assets and estate planning wishes are carried out in light of this major life change, there are three things you must do as soon as possible after divorce.
1. Change Beneficiary Designation On Life Insurance After Divorce
A life insurance policy is a contract between you and the insurance company. You designate the beneficiary (the individual(s) or entity who will receive the proceeds upon your death) and the insurance company will pay them when you die. Because the beneficiary designation is a legally binding contract, the insurance company has to pay the individual listed as your beneficiary. If your ex-spouse is listed as the beneficiary, they will pay the funds out to him or her. It does not matter to the insurance company if the two of you are now divorced.
2. Update Beneficiary Designation On Retirement Plans After Divorce
Although state law may automatically revoke a designation on a retirement plan if the ex-spouse is listed, federal law states that the last named beneficiary is the one who is entitled to the funds. Depending upon what type of retirement account you have, it might be the state law that controls, or the federal law. To be on the safe side and avoid a potentially long and costly battle for your family, it is best to change the beneficiary as soon as possible after a divorce.
3. Create or Revise Your Estate Plan After Divorce
As discussed above, a divorce is often the perfect time to overhaul your estate plan. If you and your former spouse had a joint trust, you will need to have your own individual trust created to hold the assets that are now in your name only. In this new plan, you will need to think about who to name as the trustee and beneficiary. If you have minor children, you may also need to consider who is going to be the individual to manage those assets on behalf of your children. In many cases, you probably don’t want your ex-spouse in these roles.
If you do not have any estate planning documents in place, now is the perfect time to get everything in order. After going through the divorce, you probably have a good idea as to what assets you own and the value of them. This will be very helpful as we discuss the right estate plan for you.
Your estate plan is more than just a trust. It can include documents such as a financial power of attorney and healthcare power of attorney. Whether you have them already or need to have ones executed, this is a crucial time to review them. Chances are you no longer want your ex-spouse to have the authority to sign documents on your behalf or make medical decisions for you. To avoid confusion by third parties as to who should be acting on your behalf, make sure to call us so we can update these essential documents.
We Can Help You Cross the Finish Line
Divorce can be a long process. Before taking those next steps into your new life, call us, so we can make sure that you cross the finish line with documents that are able to carry you and your wishes forward. Nielsen Law PLLC provides family focused estate planning to individuals and families in Austin, Round Rock, Cedar Park, and the Central Texas area. For more information and to learn about our firm, please contact us.