If you’re a parent, there’s a good chance you and your spouse created an estate plan to provide for your child’s well-being in the event something happens to either or both of you. Now you’re getting divorced, or newly divorced. How does that estate plan need to change?
If reading the paragraph above made you uncomfortable, it may be because you’re one of the roughly 60% of American adults who don’t have a will. If you do have one, your discomfort may stem from the realization that divorce means that you should do something about updating it. You’re probably tired of dealing with legal business, and want nothing more than to just focus on life for a while.
An estate plan is one of those things that doesn’t really matter—until suddenly, it means everything. Here’s why you should update not just your will, but your entire estate plan, when you divorce.
Tips for Your Post-Divorce Estate Plan
Although you’re updating your estate plan with an eye toward life after divorce, you don’t need to wait until you are divorced to begin updating. In fact, it is preferable to update at least some aspects of your estate plan before divorce. A prime example: your durable financial power of attorney. This document allows you to designate someone to manage your financial affairs in the event you become incapacitated, say, if you suffer a debilitating brain injury in an auto accident. If you have a power of attorney naming your spouse, but no longer would want him or her to have control over your finances, you need to revoke this power of attorney and send the revocation to all relevant financial institutions so they are aware of the change.
Even more important is to update any advance health directive you may have, especially a durable power of attorney for health care. This document may also be called a patient advocate designation or health care proxy, and it allows you to appoint another person to make medical treatment decisions for you if you are unable to make them for yourself. Ordinarily, it makes sense that this person would be a spouse. But if you are estranged from your spouse pending a divorce, do you really want them to have the power to make literal life-and-death decisions for you after a sudden accident or injury? Likely not.
Obviously, when you are getting divorced you also want to update any wills or trusts to reflect your new relationship (or lack thereof) with your ex-spouse. Most people no longer want to leave anything to an ex in their estate plan. The good news is that Michigan law assumes that if you’ve gotten divorced since you executed the will or trust, you don’t intend your ex-spouse to benefit or to serve as executor or trustee. The law will treat your ex-spouse, for purposes of the will or trust, as if they predeceased you.
That said, it’s still wise to execute a new will and amend your trust as soon as possible to reflect your current intentions. There exists the unlikely, but real, possibility that you could pass away between the time you decide to divorce and the divorce becoming final. Or your ex could try to litigate to get what they feel they are “entitled to” from your will. If for some reason you do want to leave something to your ex, you should create a post-divorce will to make this intention crystal-clear, and so the bequest will not be invalidated.
Remember, too, that if your divorce judgment makes a certain provision that obligates you to do something for or transfer something to your ex-spouse, changing your will will not invalidate that obligation.
Remember to Update Your Beneficiary Designations
In addition to updating legal documents such as your will, trust, powers of attorney, don’t forget to change your beneficiary designations on other accounts, such as life insurance policies. You may be required, as part of your divorce judgment, to maintain life insurance with your ex-spouse as beneficiary in order to secure child support or another financial obligation in the event of your death. However, many people forget to change the beneficiary or cancel the policy after their financial obligation is fulfilled.
A 2016 Michigan Court of Appeals case found that a deceased man’s ex-wife was entitled to the proceeds of a life insurance policy that named her as beneficiary. Their divorce judgment required him to maintain life insurance to secure his obligation on a home equity line of credit they had shared. Although he paid off the obligation during his life, he never canceled the policy or changed the beneficiary.
To be on the safe side, change the beneficiary on all life insurance policies after your divorce to the extent that you are legally allowed to do so. If you must maintain life insurance with your ex as beneficiary to secure a financial obligation in the divorce judgment, review that policy every year, reduce the benefit amount to the amount of the remaining obligation, and change the beneficiary as soon as you are legally able to.
In addition, don’t forget to remove your ex-spouse as beneficiary on your retirement accounts and other financial accounts. Failing to do so could result in a windfall for them worth hundreds of thousands of dollars.
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