Senior Divorce – Part II

Seniors divorcing face different issues and considerations then younger couples divorcing. This article concludes a checklist begun in last month's issue.

Beneficiary Designations:

Divorcing seniors are likely to have substantial retirement accounts and other assets governed by beneficiary designations. These must be formally changed for every account (IRAs, pensions, insurance, brokerage accounts set up with beneficiary designations). The mere recitation of how beneficiary designations are resolved in a property settlement agreement should not be relied upon as sufficient. Change forms should be sent certified mail return receipt requested.

Insurance:

Life insurance planning is different as seniors are more likely to own policies with considerable value. Further, while younger couples can often purchase inexpensive term insurance to meet divorce requirements, seniors are less likely to be able to avail themselves of this option. If your ex-spouse is to maintain life insurance for you, it is even more important as a senior divorcee that you assure that your ex-spouse's coverage does not lapse since age and health problems are far more likely to make replacing lapsed coverage prohibitive or impossible. Confirmation of payments and an arrangement to receive notice from the insurance company in the event of default is essential to protect the policies. Mandate in the property settlement agreement that periodic in-force illustrations will be prepared, and if policy performance becomes a problem, include a mechanism to address it. Seniors are more likely not to need life insurance coverage. Older policies might be sold to avoid future premiums and raise additional cash to divide between the spouses. The price which might be realized in a secondary market may substantially exceed the cash surrender value. Young couples rarely can avail themselves of this because coverage is needed to protect alimony payments and minor children. Seniors are more likely to have their insurance in a trust ("ILIT") in which case the trust and the trustees should agree to all actions as part of the overall property settlement agreement. The trust might have to formally be involved in the proceedings.

Wills, Powers, Etc.

Most divorcing spouses, other than perhaps cancelling powers of attorney, tend to wait to update their estate planning documents until after the divorce is settled so that the revisions can reflect the agreements. This is more dangerous for seniors. As soon as the divorce starts seniors should revise their wills, powers, living wills, health proxies and other documents. Name new agents on every document. Your will might bequeath to your spouse the lesser of the minimum required by state law (spousal right of election), or what the divorce agreement mandates. Once the divorce is finalized these documents should be revised again to reflect the settlement. What lawyer is used? In some cases, if both spouses and their matrimonial counsel can agree in writing to the parameters, the same planner may be able to revise both spouse's documents. This can be a significant cost and time saver, and more significantly, create less antagonism and facilitate joint post-divorce planning for insurance trusts, children's trusts and more. In other situations, one spouse may continue with the same attorney subject to approval by the other spouse and counsel, and the other spouse can hire a new attorney. Seniors divorcing often assume that adult children will take an "adult" view of the situation. Children, even though they are adults, often take the divorce really hard and too often take sides or worse. Seniors need to carefully consider whether children (who most likely were named as fiduciaries) should be left as agents. Seniors might initially name friends or advisers until the situation calms down, then change the documents back to the children. Estate tax planning needs to be revised. The post-divorce asset landscape will look quite different. An aggressive annual gift program may no longer be financially feasible. Perhaps cash gifts will give way to property gifts to preserve liquidity.