If you were one of the masses whose divorce was finalized in 2018, now is the time to revise your estate plan.
Last year was a busy year for divorce attorneys. Changes in the tax laws precipitated a flurry of year-end activity with people trying to finalize their divorces by December 31 before the tax law changes took effect on January 1, 2019. Under the new tax laws, alimony is no longer deductible by the payor, and it is no longer taxable by the receiver. This has a negative impact on both parties. The payor will not get the tax deduction. The receiver will probably end up with less alimony because the payor has more taxes to pay. My divorce law colleagues were working around the clock through year-end because so many people wanted to get divorced.
If you were one of the masses whose divorce was finalized in 2018, now is the time to revise your estate plan. This also applies to folks who divorced in prior years and never got around to updating their estate plan. Here are the issues you should be thinking about.
Give your divorce agreement to your estate planner. Your estate attorney needs to know what obligations you have to your ex-spouse in the event of your death.
Update your health care proxy. The health care proxy allows you to name someone to make health care decisions for you if, for instance, you were in a car accident or had a health emergency and were unable to communicate. Unless you want your ex-spouse making these decisions – and I haven’t met many people who do – you need to name someone else you trust.
Change your power of attorney. If you had an old power of attorney naming your ex-spouse, that should be revoked. You should also execute a new power of attorney naming a friend, relative or trusted advisor to act as your agent regarding your finances and assets.
Revise your will and trust. Remove the provisions for your ex-spouse and remove your ex-spouse as the executor and trustee. You want to make sure your “ex” does not receive any assets if you die and has no control over your estate or trust.
Rethink guardianship if you have minor children. You may choose to name your ex-spouse as the guardian in your will. Even if you don’t, your ex-spouse will most likely serve as guardian of your minor children if you pass away unless he or she is determined by the court to be unfit. However, if you had a bad divorce, or if your ex-spouse has a substance abuse problem, you may want to name someone other than your ex-spouse as the guardian. I’ve had several clients with ex-spouses who have severe substance abuse issues who leave enough cash in a joint bank account (with the trusted guardian they named) in order to fund the litigation that will be necessary to prove the ex-spouse unfit.
Make sure you have a trust for minor children. If you do not have a trust for minor children, and your ex-spouse is the children’s guardian, he or she will have control of the children’s finances until they turn 18. Most clients do not want their ex-spouse controlling their children’s monies. You should have a revocable trust that will name someone of your choosing as trustee to access and control the money for your children if you die.
Pay particular attention to life insurance requirements. I have encountered numerous instances where folks just completely ignored their obligations to maintain life insurance under their divorce agreement. One ex-husband maintained the life insurance policy, but removed his ex-wife as required under the divorce agreement naming his new spouse as the beneficiary instead. Another client’s ex-husband died having let the required policy lapse. Both instances resulted in litigation. Review your obligation to maintain life insurance under the divorce agreement with your estate planning attorney, and with your divorce attorney, if necessary.
Check your beneficiary designations. Another area that people often forget about or ignore are their retirement plan beneficiary designations. Make sure your 401K and IRA beneficiary designations are consistent with the terms of your divorce agreement. I have encountered a few situations where folks never updated their beneficiary designations after their divorce, and then died. This can result in unforeseen consequences and litigation to correct who the beneficiary should have been. Some states automatically allow for a divorced spouse to be removed as the beneficiary in these instances, but proving that to the financial institution that administers the account can be costly and time consuming. Better to have the beneficiary designations updated. If by chance you do want to name your ex-spouse as the beneficiary, you should execute a new beneficiary designation dated after the divorce. It is also a good idea in that instance to leave a letter of intent with your attorney so your intentions are clear.
Don’t forget about the prenuptial agreement. I am always surprised how soon people get remarried after their divorce is finalized. Needless to say, if you are thinking about getting remarried, make sure you have a prenuptial agreement.
Now is the time to tie up those loose ends from your divorce and get your estate plan in order. Remove your “ex” from those old estate planning documents, take charge and get on with your life.