Divorce and Estate Planning Tips: What You Need To Know

If you are going through a divorce or plan to do so soon, you will likely need to update your estate planning documents. Some areas of your estate plan you’ll want to revisit after a divorce include your will, trust, financial power of attorney, healthcare proxy, and more. It’s important to update these documents after a divorce to make sure your financial plan accurately reflects your wishes. 

Updating Your Estate Plan After Divorce

If you and your former spouse created an estate plan together during your marriage, then you probably have an idea of what goes into it. Many of the same estate planning components you created during the marriage will have to be updated once you’re divorced.

The most important documents to revisit are your:

• Will
• Trust
• Power of attorney
• Life insurance
• Financial accounts
• Guardianship 

After a divorce, your wishes for who you want to inherit your assets, and who you want making decisions for you if you’re incapacitated will likely have changed.

“There are some simple and complex reasons why it’s important to update an estate plan after a divorce,” said Patrick Hicks, an estate planning attorney and head of legal with Trust & Will, an estate-planning company.

“During a marriage, there are certain legal rights provided to your spouse, and many estate plans bake in these legal rights. From a practical standpoint, the nature of your relationship has changed, so your estate plan should change too.”

Some states have some protections in place for the way a pre-divorce estate plan is executed after a divorce. For example, if a will drafted before your divorce leaves all of your assets to your spouse, your state’s laws may ensure that, after a divorce, your former spouse won’t actually receive them. 

“The simplest thing to do is to be proactive about updating your estate planning documents so there’s no contest,” said Jamie Berger, a family law attorney and the co-founder of the law firm Jacobs, Berger LLC. “Estate litigation, much like divorce litigation, is messy.”

When Can You Update Your Estate Plan?

When you’re going through a divorce, you may feel a sense of urgency to remove your spouse from all parts of your estate plan, but state laws may limit your ability to do so right away.

“It’s common for states to impose a limitation on what you can do while a divorce is pending,” Hicks said. “A common name for this is an automatic temporary restraining order. These are limitations that will say, you’ve indicated you’re about to go through a divorce, so some things are frozen.”

These laws can prevent one spouse from moving or hiding assets that will rightfully belong to both spouses equally. But it’s also important to wait to make changes because your divorce decree may dictate what parts of your estate plan you can and cannot change.

Do You Need an Attorney To Update an Estate Plan After Divorce?

Creating an estate plan may feel overwhelming, and it might seem frustrating to deal with more legal documents during or after a divorce. The good news is that updating your estate plan doesn’t have to be difficult.

According to Hicks, there are three primary strategies you can use to update your estate plan: DIY, an online legal service, or an attorney.

“Many states have simplified versions of a standardized document, so you can certainly do it without help if you feel comfortable,” Hicks said. “If you want handholding, there are online services that can help you. And, of course, you can pay an attorney if you want someone to do it for you.”

Will

When people think of estate planning, the will is often the first thing they think of, as it should be part of every estate plan. It’s a legal document that allows someone to dictate what they would like to happen to their property and assets when they pass away. 

Some states allow couples to have joint wills. And even if a couple doesn’t have joint wills, it’s often the case that each spouse lists the other in their will as a beneficiary. Because of that, it’s important to change your will or draft a new one after a divorce.

Trust

A trust is an estate-planning tool that’s used to hold property or assets to benefit another party. Trusts are often used as an estate planning tool to pass assets along to beneficiaries. For example, someone’s will might state that instead of assets passing directly to beneficiaries, they’ll be transferred into the trust and ultimately passed along to the beneficiaries in a specific way.

If you have an individual trust, you can update it with a simple amendment after your divorce, according to Hicks. Assuming you no longer want the assets to go to your ex-spouse, you’ll designate a new beneficiary (or beneficiaries). 

“One complexity is that trusts can be joint, so two spouses could create a single joint trust for the two of them,” Hicks said. “That could be a wrinkle with divorce because you have to figure out how to unmingle it. In most cases, you would go separate ways, and each spouse would create a new trust, each on their own path. A joint trust would typically be resolved through the divorce decree.”

If you and your spouse had a joint trust to benefit your children, you could create two separate trusts for the same purpose. But if you choose to go that route, coordination between you and your ex-spouse may be helpful.

Power of Attorney

A power of attorney (POA) is another legal document that’s a part of many estate plans. Rather than being applied when you die, a POA is used in a situation where you’re alive but can no longer make your own decisions.

The main type of power of attorney you may want in your estate plan is a financial power of attorney. You may also want to include a medical power of attorney, which will name a health-care proxy—someone who will make medical decisions on your behalf if you’re incapacitated.

If your divorce was amicable, and especially if you have children together, you may wish to keep your ex-spouse as your financial or health-care agent. Hicks still recommends drafting a new post-divorce power of attorney, as it will be less likely to be contested.

Life Insurance

Life insurance is both one of the simplest and one of the most important parts of your estate plan to update after a divorce.

If you fail to change your beneficiary from your ex-spouse and then you pass away, your ex-spouse may receive those funds. The good news is that changing your life insurance beneficiary is quite simple. In most cases, you’ll just need to contact your insurer and complete a new beneficiary form.

Keep in mind that if you have minor children that you want to leave your assets to, naming them as your life insurance beneficiaries could create some unexpected complications, since they can’t actually manage those assets themselves.

Instead, consider creating a trust and leaving the life insurance proceeds to the trust. That way, you can leave money to your minor children, and still not give full control of it to your spouse. Your spouse doesn’t have to be the trustee. Instead, you could have a family member manage the trust until your children are old enough to access it themselves. 

If you’d like your spouse to have some control over the funds, but want to ensure that your wishes and your children’s financial future are protected, you could make your spouse one of multiple trustees. Each trustee would have the same level of power and fiduciary responsibility. 

Financial Accounts

Financial accounts, including your bank accounts and investment accounts, can be passed on in a couple of different ways. They can be a part of your estate and distributed based on the instructions in your will.

Financial accounts can also have beneficiaries listed, which means your assets can be passed on directly.

“Life insurance has beneficiaries, but so do other accounts,” Hicks said. “You could have a retirement account or a bank account with a payable-on-death provision where it automatically passes to your spouse. There are many ways assets could pass to someone after your death, and you need to think about all of them during a divorce.”

Designating beneficiaries in your financial accounts simplifies the process of your assets being passed along and means they most likely won’t go through probate. But like your life insurance policy, failing to update your beneficiary could result in your assets going to your ex-spouse, even if those aren’t your wishes.

You’ll most likely be able to update your beneficiaries online or by sending a physical form to your financial institution. If you aren’t sure what the process is, contact your financial institution and find out how to change your beneficiaries. 

Guardianship for Minors

When considering guardianship for your minor children after a divorce, if applicable, Berger suggests trying to be as practical as possible.

“One thing I always tell my clients, especially regarding designations about who is going to take care of your children, is that if you’re changing it, you’re doing it for the right reasons,” Berger said. “It’s not because you’re divorcing your spouse. It’s because you don’t think this person will raise your children the way you want them raised.”

Think About Your Estate Plan Before the Divorce is Finalized

Experts recommended waiting until the divorce is finalized to update your estate plan. But that doesn’t mean you should wait until then to start thinking about it. In fact, many estate planning matters can be a part of the divorce negotiations. 

“A question I always ask in a strategic planning session is: Do you have an existing estate plan and if so, what are some things you’re comfortable with remaining in there, and what are some things you may not be comfortable with?” said Berger. “That’s something I may want to negotiate in an agreement between the parties.”

For example, it’s not uncommon for a divorce decree to require one or both spouses to maintain life insurance with the other listed as the beneficiary. This is especially common if one spouse has a support obligation to the other (in the form of alimony) or if the pair share children. 

“If I have a child who is five years old, and I have 13 years left of supporting them, one of the requirements of the divorce might be to have an insurance policy at least until the child turns 18,” Hicks said.

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