You have recently divorced and the judge has signed the divorce decree. Now what? Although you may feel as though you have spent enough time and money on lawyers, there is one last attorney you need to talk to: an estate planning attorney. If you and your former spouse had estate planning done together previously, it is necessary for you to come in and make changes to avoid having your money and other property distributed in a way you do not intend when you pass away. If you have not done any planning, now is the perfect time to get your affairs in order.
When you meet with the estate planning attorney, it is crucial that you bring all necessary documents, including a copy of your divorce decree. This document will be helpful in determining what obligations need to be provided for in your documents, what accounts or property you now own, and how you own those accounts and property.
What Is in a Divorce Decree?
Spousal or child support obligations may necessitate purchasing life insurance should you pass away before fulfilling the entire obligation. If there is a child support obligation, it may be wise to have the life insurance policy owned by a trust allowing distributions to the minor children by a trustee instead of a lump sum payout to your former spouse, who may or may not use the funds as intended.
The divorce decree will also contain a section on the division of your marital property. This is helpful information to provide to the estate planning attorney to present an accurate picture of your current property and financial accounts. If you were to pass away, these assets would go to your heirs if you haven’t done any planning. This may not coincide with your wishes, and so it is important to ensure you have an estate plan that leaves assets to your chosen beneficiaries in the way you want.
What Effect Does the Divorce Decree Have on an Existing Estate Plan?
Last Will and Testament
Depending upon the state in which you live, divorce can have a varying impact on your will. In Texas, a divorce revokes all provisions in your will that benefit your former spouse as well as their relatives. Additionally, Texas law also revokes the appointment of your former spouse as your executor. Therefore, it is very important to review your estate plan to ensure that the named backup beneficiaries and executors are still appropriate.
Revocable Living Trust
The effect of divorce on a revocable living trust is usually included in the trust document. Some trusts revoke all provisions relating to the former spouse, while others leave the trust intact. If you and your former spouse previously had joint planning, it is important to review it and make any desired changes. Gifts to your former spouse’s family as beneficiaries of a trust may or may not be revoked as a result of the divorce.
Financial Power of Attorney
In Texas, divorce revokes the former spouse’s appointment as agent (the person who would act on your behalf) under a financial power of attorney. However, in some other states, and the District of Columbia, a divorce does not revoke your spouse’s ability to act as your agent. Regardless, if there are any outstanding powers of attorney with third parties, it is important for you to inform them of your divorce and provide them with a revocation so they are on notice that your former spouse is no longer authorized to act on your behalf.
Medical Power of Attorney
Like other estate planning documents, state laws vary as to whether or not your former spouse will still be able to make medical decisions for you if you are unable to make or communicate them yourself. Some states, including Texas, will revoke the designation of your former spouse as your agent for medical matters as a result of the divorce, while others do not. Regardless, it is important to keep this document up to date and to provide it to the necessary healthcare professionals.
Because a life insurance policy is a contract with a third party, a divorce can sometimes complicate things. If you named your former spouse as a beneficiary of the policy prior to your divorce, in Texas, such a designation is automatically revoked. However, even though the designation is revoked under Texas law, it is important to change the beneficiary designation so the company is on notice of your wishes. Often, married couples will name each other as the primary beneficiary of a life insurance policy, and then the minor children as the contingent beneficiary. Upon divorce, the minor children become the primary beneficiaries. This can result in a mess if the minor receives an inheritance outright. Therefore, especially in instances of divorce, it is important to ensure that any assets left to a minor child are left to them in a trust and not outright.
For accounts governed by the Employee Retirement Income Security Act of 1974 (ERISA), the designation is not automatically revoked. In order to ensure that your former spouse does not receive the benefits, you must affirmatively change the designation, provided that your divorce decree does not state otherwise.
You Need An Estate Plan Now More Than Ever
As a newly single person, you are now in full control of your money and property. Without an estate plan in place, the state laws will determine what happens to your money and other property. If you already have estate planning documents in place, you need to review them when circumstances change, such as in the event of divorce. Even if gifts to your former spouse are revoked under state law, you need to make sure that the alternate plan built into your documents is still what you want. Give us a call today so we can schedule an appointment to protect your new future and those you love, and don’t forget to bring the divorce decree.
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.