Divorce and Estate Planning
By: Martin M. Shenkman, CPA, MBA, JD
Divorce: Estate Planning Steps During and After Your Divorce
Money Matters Radio – Estate Planning Checklist
By:
And Deana Balahtsis, Esq.
Ms. Balahtsis is a
Introduction/Overview: Divorce affects every aspect of your estate planning. When the tough divorce decisions are done, you’re still not done. There are often a host of steps you have to take to update your estate and related planning to reflect the changes wrought by the divorce. Ideally these should be addressed during the divorce process so that they are integrated into the divorce or property settlement agreement and any necessary documents are signed as part of the divorce (it’s always harder to get an angry ex to sign documents after than as part of the divorce). However, the reality is that many of these items are commonly missed during the divorce and you’ll need to do “clean up” of these loose ends after the divorce is finalized. The key is making sure they are addressed.
Consider the following items?
√ Destroy Old Documents: If you have not already destroyed old powers of attorney, health proxies or other documents naming your ex do so. Even if the divorce automatically makes those documents void, why tempt anyone. Do you want your ex to be holding an original signed health proxy authorizing him to pull the plug if you are hospitalized? This is a tricky step since there are often documents that are not obvious, such as a bank power of attorney form for one of your accounts your ex signed years ago that is on file at the bank and for which no one had a copy.
√ Sign new Documents: Usually about the last thing anyone wants to do after a divorce is hire a lawyer or spend more money on legal fees. But you really need to update all of your documents. Frequently powers of attorney, wills and other documents name an ex-spouse, an ex-spouse’s family or friends that have sided with your ex. Revise you’re your documents and name people as fiduciaries you can trust to take care of you and respect your wishes.
√ Revise Beneficiary Designations: If your ex is named as beneficiary of your pension plan he/she might vary well inherit the plan if you die. Don’t count on state law or the fact you’re divorced to change this. Sign new beneficiary designation forms and send them to each plan sponsor certified mail return receipt to prove you filed them.
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√ Monitor Life Insurance: Most divorces include a requirement that one spouse provide the other with life insurance coverage, but very few divorce agreements address how that coverage should be monitored. Given the upheavals in the insurance industry this is really important. Be certain that you obtain copies of proof of payment and if possible the right to periodically insist on and receive an in force illustration of the policy so you can verify that it is viable. Most divorce agreements don’t address the type of insurance coverage required, just the amount. Your ex could buy the cheapest which is one year term. But if he develops a health issue in later years the coverage will become unavailable. The divorce agreement should mandate insurance that will last as long as the obligation. Example: If you will receive alimony and child support for about 20 years, your ex should be required to purchase 20-year term.
√ Property and Casualty Insurance: It is common in many divorces for some co-owned property to continue. For example, one of you might retain the marital residence until the youngest child attains age 18. If you’re a co-owner be sure your name is listed on the insurance policy for the house.
√ Investments: Revise your investment allocations. Most post-divorce portfolios are a mess. Don’t delay, get asset reallocated in a manner that works for you.
Caution: Rules differ dramatically by state. Be certain to consult BOTH a family lawyer (matrimonial attorney) and an estate planning in your state. Also, these are separate disciplines don't rely on your estate planner for the matrimonial issues or on a family lawyer for estate planning issues.
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