This is the third part of a three-part topic – The Effect of a Divorce on Estate Planning. In previous blogs, we explained how a divorce changes or does not change, how assets pass at death, and several issues and problems that come up. Now, we will cover several ways that these problems can be solved.
What Problems Can a Divorce Cause?
Before discussing what solutions are available, it’s important to remember what problems can occur from a divorce. As a brief review, the problems with an estate plan after a divorce can include:
- Not changing the client’s other estate documents including a trust, and power of attorney documents.
- Not changing the client’s beneficiary designation for a life insurance policy or retirement account away from the ex-spouse.
- Not changing a deed for property awarded to the client in the divorce to take the spouse’s name off the title.
Solutions to Common Divorce & Estate Planning Problems
- When the estate documents are initially prepared, the attorney can include a provision that the spouse is only part of the plan in the documents during the time the client and spouse are married. It is possible to even take this further by not waiting for the client’s divorce to be final. The documents can state that the spouse is no longer a part of the plan if a divorce proceeding is ongoing, even if not yet final.
- Revise what can be edited during the divorce process. Once a petition for divorce is filed, the client and the spouse are prohibited from changing beneficiary designations or transferring title in accounts and property. But, the client can still change his/her will (and maybe a revocable trust) and his/her power of attorney documents to appoint a new Power Person.
- During the finalization of the divorce process, it is common to see language in the Marital Dissolution Agreement (“MDA”) that says the client and ex-spouse release any rights he/she may have to the other’s property that each is receiving in the divorce. The problem with this is that often, the status of being a beneficiary on a life insurance policy or a Power Holder in a Power of Attorney is not considered a right. It is more of a designation. Some attorneys address this issue by including language in the MDA that the client and the spouse also relinquish any appointment or designation as a beneficiary of a life insurance policy, retirement account, and trust, and decline to serve in any Power Holder position.
- After the divorce, work with the client to revise his/her estate planning as soon as possible. The client should do a new will, and if part of the existing plan, revise a trust to take the ex-spouse out of the documents. It is interesting that this statute does not apply to beneficiary designations. If a decedent leaves his or her former spouse as the designated beneficiary of a life insurance policy or a retirement account, the insurance proceeds or retirement account passes to the former spouse. Cases have been brought arguing that the divorce extinguished the former spouse’s rights to the policy or account, but they have been unsuccessful.
Talk to an Estate Planning Lawyer to Learn More
As you know now, a divorce can complicate things during the estate planning process. Divorce can be stressful enough, and you don’t want to worry about how it will affect your plans for the future. To ensure that you won’t run into problems down the line, consult with an estate planning lawyer at MHPS.
Contact us today to prevent any estate planning issues following a divorce.
