Amidst the emotional turmoil, it’s easy to overlook practical considerations, such as updating your estate planning documents. Yet, failing to address these important legal matters during a divorce can lead to unnecessary complications and potential conflicts down the road.
There are two parts to making sure your estate documents accurately reflect your wishes during and after a divorce. First, you need to have them in place. Second, you need to be proactive about updating them in response to any changes in your circumstances.
Here are a few things to keep in mind if you are considering or in the process of getting a divorce.
1. Create a Will
If you don’t already have a Will, creating one should be your number one priority. Without a Will, the State of Connecticut decides who inherits your assets. This might seem like an obvious step, but 58% of adults don’t have a Will. Even people with a high net worth sometimes overlook this crucial step in asset protection and estate planning. (For example, the musician Prince died without a Will, which resulted in six years of legal battles over both assets and intellectual property rights.)
It is a good idea to have an estate planning attorney review and update your Will to remove your soon-to-be ex-spouse. While your ex-spouse will be removed automatically when your divorce is final, it is advisable to take matters into your own hands. This approach also gives you the opportunity to make any other updates that might be needed as a result of the situation.
2. Update Your Estate Documents
In addition to your Will, there are a number of estate planning documents that will likely need to be updated in response to a divorce.
- Power of Attorney: The person holding your power of attorney has as much control over your finances as you do if you are incapacitated. Few people would want an ex-spouse in charge, even if the split was amicable.
- Health Care Representative: If anything should happen that leaves you incapacitated, your legal health care agent or representative is responsible for making decisions about things like life support and end-of-life choices.
- Beneficiaries: Beneficiary designations are probably one of the updates most overlooked when life takes an unexpected turn. In addition to the beneficiaries named in your Will, you will want to update those named on retirement accounts and life insurance policies.
3. Divorce and Life Insurance
If there are minor children in the family, additional considerations should be kept in mind. For example, the spouse paying child support is generally required to maintain a life insurance policy for the benefit of the child. However, if that parent dies while the child is still a minor, the funds cannot be given directly to the child.
There are two different ways to handle the matter of divorce and life insurance.
- One is to have the surviving parent hold the funds for the benefit of the child. This requires only that the account is set up in the surviving parent’s name followed by the words “as custodian for [child] under the Connecticut Uniform Transfers to Minors Act.”
- The other option — which offers greater protection and flexibility — is to set up a life insurance trust that names the child as an irrevocable beneficiary of the policy until they reach the age of majority, or they can remain in the trust and allow for distributions at specific ages.
Celebrity divorces often serve as a cautionary tale, and there are plenty of cases in which divorces and a lack of estate planning diligence and maintenance led to lengthy and very messy court cases.
Sometimes, as with the case of Frank and Jamie McCourt, previous owners of the Dodgers, the crux of the problem is the lack of a prenuptial agreement. In other cases, it’s simply a matter of not doing basic estate planning documents.
But sometimes, a celebrity story teaches some important lessons.
Take the case of the actor, Dennis Hopper, whose estate was estimated around $40 million. He died while in the middle of a contentious divorce with his fifth wife. That scenario might have been disastrous for his heirs if Hopper hadn’t had the foresight to proactively remove his wife as a beneficiary not only in his Will, but also from his life insurance policy and trust.
After Hopper’s death, his wife did sue the estate, but because Hopper had the foresight to make the changes he did when he did, the battle didn’t last nearly as long as it would have otherwise, and the majority of the actor’s estate was distributed to his children according to his request.
If you are facing divorce, and would like estate planning support to ensure that your assets are protected, we can help. Having the right professional team to help you deal with the legal issues can make things go much smoother and give you greater peace of mind.