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If you are contemplating divorce, or currently going through one, you are probably overwhelmed with the rapid-fire changes that are happening and the multitude of decisions that need to be made. But, in the midst of this whirlwind, I want to make sure that you don’t miss a commonly overlooked, but extremely important issue – your will and the beneficiary designations for your life insurance, 401Ks, IRAs, and other documents where you may have named your husband as beneficiary.
So why is this so important?
People often leave the vast majority, if not all, of their assets to their spouse in their will. The same is true with most beneficiary designations. More often than not, one’s spouse is designated to receive 100% of the assets as the primary beneficiary.
But if you are getting divorced, is this really what you want to do?
In most cases, I think it might be a safe assumption that you probably don’t want your soon-to-be ex-husband to inherit all of your property.
However, that is exactly what will happen if you haven’t prepared a new will or revised your current one and you die before your divorce is finalized (or in some states, like New York, have a Separation Agreement that has been fully signed by both parties).
To make matters worse, picture this scenario. Your husband inherits all your property under the terms of your current will, remarries and then leaves all of “your property” to his new wife and their kids.
Unintentionally, you could disinherit your own children!
So can you, or should you, disinherit your husband?
In most states you cannot completely disinherit your husband until your divorce is finalized, even if you have cut him out of your will.
That’s because of something called an Elective Share.
In essence, an Elective Share is your spouse’s right, while you are still married, to inherit a percentage of your estate, even if you completely disinherited him. It is important that you consult with both a divorce and a trust and estate attorney in your state, since the laws can differ greatly from state to state. For example, in New York, the spouses’ Elective Share is one third of the net estate if the parties have children and one half if they do not (the net estate is the amount left after paying all bills, debts and expenses, including funeral costs).
While I’m sure you’d prefer he gets nothing, one third or one half is certainly much better than 100%.
And, of course, once your divorce is finalized, you can and should rewrite your will to completely disinherit him at that time.
Timing is everything! When should you make changes to your will and beneficiary designations?
Ideally you should consider changing your will and all your other estate planning documents before filing for divorce. This includes updating your living will (medical directives) and financial power of attorney so that someone other than your soon-to-be ex-husband has the ability to make financial and/or medical decisions on your behalf should you become incapacitated. (Do you really want him making possible life and death decisions on your behalf at this point in your relationship?) You may also want to name new beneficiaries on your life insurance policies, retirement accounts, annuities and other investments where applicable. Beneficiary changes to some accounts such as 401Ks and pension plans may require the consent of your spouse and, in all likelihood, you will not be able to change them until after your divorce has been finalized.
Also, once divorce proceedings have begun, the ability to change/move various accounts, name new beneficiaries and/or revise other documents might be prohibited. What’s known as an Automatic Temporary Restraining Order (ATRO) may be in place to ensure that both parties’ assets and ownership interests stay the same until they have been divided pursuant to the final divorce decree.
There is another possible option
If your divorce is not yet final, it may be possible for you and your husband to negotiate a separation agreement. A separation agreement could include provisions under which each of you gives up all claims to the other’s estate. Any property held jointly must be specifically addressed in the separation agreement (once again, state laws differ greatly, so please check with both your divorce attorney and a trust and estate attorney licensed in your jurisdiction).
Once the divorce is final, both you and your ex-husband will receive your portions of what was once community or marital property. This will now be your separate property going forward.
Changing Your Documents After the Divorce
After the divorce is final you are free to update, revoke and amend your estate planning documents and beneficiary designations as you wish. Although, in some states, your ex-husband may automatically be removed from your will after your divorce is finalized, it is probably a good idea to formally remove him by revising or rewriting your will. In any event, because beneficiary designations supersede the terms of your will, you must change those beneficiary designations as soon as you legally can to make sure that your ex-husband is no longer your beneficiary on life insurance policies, retirement accounts, pensions, wills, trusts and annuities. It is important to go over this very carefully and to consult with a trust and estate attorney who will prepare the required documents and coordinate the timing and recording of the changes.
Estate planning is just one of many critical issues with financial and tax implications that must be considered before, during and after a divorce. There are also many other important financial issues that should be addressed and are often overlooked during the turmoil of divorce. Having a team of competent professionals, including a divorce financial planner, will help you get through this life transition with the best possible outcome for a secure financial future.
Jeffrey A. Landers, CDFA™ is a Divorce Financial Strategist™ and the founder of Bedrock Divorce Advisors, LLC (http://www.BedrockDivorce.com), a national divorce financial strategy firm that exclusively works with women, who are going through, or might be going through, a financially complicated divorce. He also advises women business owners on what steps they can take now to “divorce-proof” their business in the event of a future divorce. He can be reached at Landers@BedrockDivorce.com.
All articles/blog posts are for informational purposes only, and do not constitute legal advice. If you require legal advice, retain a lawyer licensed in your jurisdiction. The opinions expressed are solely those of the author, who is not an attorney.
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