Big Changes, Critical Decisions: Divorce and Estate Planning.

This week, I was visiting with a client of mine who has been married more than once. The questions that this client had for me centered around whether there was anything that needed to be done in her estate planning after a divorce.

The fact is, there is a great deal that must be considered when a divorce takes place. Getting a divorce decree from the courts is only the beginning. Here are some things that should be dealt with as soon as possible after a divorce that can have a major impact on your estate planning:

1. You should carefully review your guardianship nominations for your minor children in your will or other legal documents and update them if necessary. This ensures that should something happen to you, your children will end up with the caregivers that you would prefer. Often, a divorce drastically changes your previous views on this issue.

2. Update your Health Care decision documents. In Utah, you should execute a new Advance Health Care Directive that helps you to designate whom you would want to make health care decisions for you if you were incapable of doing so. Often, these documents have not been changed after a divorce and in an emergency, and an ex-spouse is contacted about health care decisions by the doctors. This is exactly what happened in the case of Gary Coleman here in Utah. His ex-spouse was still named as the health care agent in his legal documents. Thus, she made decisions about his health care. And even though that may have been what Mr. Coleman would have wanted, it is still unclear if that was the case.

3. Change Beneficiary Designations on your Life Insurance, Retirement Plans, Annuities, etc. Often, after a divorce, individuals forget to change these beneficiary designations. Upon death, a life insurance company is contractually obligated to pay out the policy proceeds to whomever is named a the beneficiary on the policy, regardless of the marital status of the beneficiary. It may well be that you intend to keep your ex-spouse named as the beneficiary of the life insurance policy because you want to be able to provide for him or her even after your death so that they can support and raise your children. The point is, you must review these beneficiary designations with your insurance advisor or your financial advisor to ensure that they fit with your overall goals.

4. Get Your Estate Plan Updated. There are countless differences between an estate plan designed for a married person and one designed for someone who is single. And these critical differences are often not obvious to a non-attorney. Sorry to say, but Legalzoom just won’t cut it in this case. You just can’t go cheap on this or you will end up paying far more (or more accurately, your estate and beneficiaries will) to clean up the mess than if you had obtained sound legal guidance from the inception.

5. Talk to your financial advisors about purchasing Disability and Long-term Care Insurance. As a single individual, you are your only source of income. If something other than death were to happen to you, such as a long-term disability or dementia, the costs of such care can be devastating. They can also leave you at the mercy of the government to provide for you or your family if you can no longer do so. Disability and Long-term Care Insurance, while not cheap, can nevertheless provide much greater flexibility and far more options with how you are cared for and how your family will be cared for if you can no longer work or live independently.

6. If you’re going to leave assets to your kids, do so wisely. Consider the use of trusts as a planning tool. A great deal of flexibility and control can be preserved if a trust is properly used as the vehicle for passing down what wealth you have accumulated over your lifetime. Far too often, assets pass to children outright and unprotected from things like divorce, lawsuits, and bankruptcy. This can result in the inheritance you had hoped to leave to your children being seized by a hostile, third party who could care less that they are taking your child’s only inheritance. Trusts can be incredibly powerful tools to ensure that your wealth passes to who you want, when you want, in the way that you want.

7. If you intend to remarry, seek counsel from your attorney. Estate plans are often drastically changed upon remarriage without the couple even being aware that such changes have occurred. The laws of the state in which you live frequently provide certain rights to a new spouse with regard to the property of the deceased spouse. This can result in your children receiving far less from your estate plan (even if it is a trust-based estate plan) than you intended. Often, a pre-nuptial agreement is required if you want to keep your estate plan intact upon remarriage.

These are just a few considerations that should be examined with regard to your estate planning upon the event of a divorce. I’ve seen far too many unintended consequences result from failure to consider the effects of a divorce upon the estate planning previously done by a couple. Yes, it is one more thing to have to think about. But I assure you, you’ll be able to sleep better knowing that it has been properly dealt with. 

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