Estate Planning After Your Divorce

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January 19, 2011

Newly divorced people often forget to write a new will. It is sad that after spending time, energy and expense to protect assets during a dissolution, people do not take the final steps necessary to protect their assets should they die.

The Good News

A divorce has the same effect as if your spouse had predeceased you under your current will, if you have one. In other words, any provision for your former spouse will be deleted and he or she will not receive an inheritance. If your will lists contingent beneficiaries, the property will automatically skip your spouse and be transferred to your alternate beneficiaries.

If you do not have a will, or if your spouse was your sole beneficiary in your will, your property will transfer by “intestate succession” (i.e. by statute). Your property will be divided between any current spouse and your children. If you have neither, it will transfer to your parents, grandparents, siblings, etc.

The Bad News

Your contingent beneficiaries are likely your children. If your children are minors, the money will generally be under the control of their guardian, probably your former spouse. Although the guardian has a duty to spend or save the funds for the benefit of the children, there are no restrictions, for example, on using them to purchase a house for them (and your spouse) to live in; to buy food for them (and your spouse), or for them to take vacations (chaperoned by your spouse). There are several alternatives to deal with this problem. You can always name other beneficiaries. Or, if you want to leave your estate to your children, you can set up a trust for your children. You then choose the trustee, who will have control of the funds with specific instructions from you about how to use them.

More Bad News

If you do not provide specific beneficiaries in your will, your estate will be distributed pursuant to statute. This may not be your desire. Although often the statutory distribution makes sense, it is always safer to expressly define your beneficiaries, so you can be assured that your assets go to the people who can most use them or who you care about most.

It’s Not Just the Will

Keep in mind that the entry of the dissolution judgment does not automatically delete a former spouse as a beneficiary of assets such as retirement plans, IRAs, life insurance policies, 401(k) plans, tax-deferred compensation plans, annuities, and the like. Unlike in a will, failure to change a beneficiary designation will result in your former spouse receiving the assets upon your death.