When you’re going through a divorce, there are many things to consider, and one of the most important is to carefully review your estate plan.
Why? Because your estate plan was probably drawn up in much better days when you never dreamed of divorcing your spouse.
Now that your relationship has changed and a divorce seems likely, it’s crucial to make a close review of your plan, how assets are distributed, and who the beneficiaries are. If you don’t, you could be very sorry.
Just look at the situation of the late Dennis Hopper.
The 74-year-old actor and star of “Easy Rider” was in a nasty divorce with his fifth wife when he decided to have her and their young daughter removed as beneficiaries from a life insurance policy. Not so fast, the judge told him. He’d have to wait for the divorce trial to address that.
Unfortunately, Hopper, who was battling advanced prostate cancer at the time, never got a chance. He died in the midst of the divorce, and the life insurance was never changed.
Hopper’s case should serve as a cautionary tale for everyone: It’s vital to have a clear understanding of what can be updated—and what can’t—in your estate plans when you file for divorce.
Hopper’s situation dramatically shows it doesn’t matter if you’re an average Joe or an easy rider, the same rules and restrictions apply.
Filing for Divorce Is Never Enough
It’s a common misconception that filing for a divorce will automatically cancel out the arrangements that you made with your spouse in an old will or trust, says estate planning attorney Christopher B. Johnson.
“Filing is never enough,” Johnson cautions. “Those old plans and beneficiary designations all stay in place until the divorce is final and the judge signs the papers. Many people think they’re in the clear the minute they file for divorce.”
Once you’ve decided that your marriage is irreconcilable and you’re ready to start down the divorce path, Johnson says it’s time to talk to an estate planning attorney and redo your trust.
Remember: The divorce process is lengthy and can take anywhere from a year to five years to be resolved. Anything can happen in that time (and often does). If you don’t do anything and an unexpected death happens during the divorce process—just think of Dennis Hopper—your last
wishes will go unfulfilled.
“At the very least,” says Johnson, “I recommend that clients draw up a new will and powers of attorney so that the spouse they’re divorcing won’t be the one making any decisions about their health and estate.”
Name someone else as your will’s executor and, if you have minor-aged children, you might also name an alternate guardian even though you probably won’t be able to stop your spouse from serving as their guardian.
A Brief To-Do List
Whether you’re about to begin the divorce process or you’re on the other side and everything’s been finalized, it’s time to make a thorough review and remember the following:
- Look closely at beneficiary designations: A divorce will cancel most things, but not some pensions and retirement plans that are covered by the Employee Retirement Income Security Act (ERISA). If your former spouse is listed as a beneficiary on an ERISA-covered plan, the divorce won’t cancel that. You will have to have that designation changed. This also applies to many life insurance policies, annuities, and IRAs, too.
- Don’t rely on court orders to take care of changes for you: Unfortunately, there are people who go through divorces and contact their ex-spouses’ bank or insurance company to collect benefits even though they’re no longer married to them anymore. It’s not that institution’s responsibility to update beneficiaries: It’s your responsibility, Johnson says.
- Remember that there are some restrictions on what can and can’t be changed: When you file for divorce, there’s a restraining order against changing title on assets and also changing beneficiary designations unless both parties agree. Those limitations are designed to make sure the process is fair. The same is true about revoking a trust: You can revoke a trust during a divorce, but you must give written notice to the other party that you’re planning to do this.
- Make a habit of updating your estate plan on a regular basis: Johnson and other estate planning attorneys recommend that clients should update their plans whenever there is a significant life-changing event for you or your intended beneficiaries (for instance births, deaths, marriages, divorces).
There are many intricacies and differences to the way various financial assets are treated under the law. As you go through the divorce process, you want to make the best choices for you and your beneficiaries; you also don’t want to make any mistakes, right?
To have the best outcome, call the Law Offices of Christopher B. Johnson and set up a consultation. Find out what you need to do for your particular situation. You’ll be glad you did.