Divorce And Estate Planning: Protecting Your Legacy During Life's Transitions

First Thing to Do (and What You Can’t Do)

Divorce represents a substantial legal and financial shift that will significantly impact your estate plan. Without proper action, your assets may end up in the wrong hands. Specific steps must be taken if you are in the process of a divorce, or if you are already divorced.

The first step is to review your prior estate plan after your divorce. If your divorce is still pending, you generally cannot change your current estate plan, with a few exceptions. The rationale is that your spouse likely has an interest in the assets of your estate plan. Our legal system does not want spouses shielding their assets until the divorce is final. This is particularly true in California because it is a community property state, meaning that all assets acquired during the marriage, other than outside bequests or inheritances, belong equally to the spouses.

You can generally still revoke your last will and testament, but you can only create a new one if you devise only your separate property and your half interest in the community property. You can create a new trust if you don’t fund it until the divorce is final. Funding means putting assets inside the trust, usually by changing the title to the asset to the name of the trust. As you can see, there are many legal nuances here.

Second Thing to Do

The second step is removing your spouse as a designated beneficiary on all your accounts. While California is one of the states that automatically removes your spouse as a designated beneficiary on most accounts, this is not true for all accounts. Notably, a life insurance policy in which your spouse is a designated beneficiary. It’s common for people to forget about these accounts, leaving heirs to sort out the mess. Even if your spouse should be automatically removed, you don’t want to rely on other entities to make this happen. Mistakes are often made, and they could cost your heirs significantly in legal fees to undo.

What Happens If I Don’t Revise My Estate Plan?

Most of your estate plan, including assets that you meant to leave to your spouse, will be revoked by operation of law. Your spouse will also be automatically revoked as a fiduciary, such as a power of attorney. However, other entities like banks will not automatically know of your divorce. Therefore, it is recommended you give these entities notice of your divorce and revocation of any power of attorney. Otherwise, it may be difficult to undo any potential damage.

It’s also necessary to fill in the gaps the divorce left in your estate plan. For example, who do you want to act in place of your spouse for power of attorney? How about your healthcare agent? How about the executor of your will?

Updating Your Estate Plan

After the divorce is finalized, this is the time to change or amend your estate plan, or create a new one. Each estate plan is different, particularly with trust-based plans. Your plan should have specific provisions that outline what happens in the event of a divorce. For that reason, it is recommended that an attorney review your prior plan before creating a new one.

If you choose not to update your plan, your estate will be distributed according to the laws of intestate succession. While this may be an outcome you desired, you would not have anybody nominated to act as a fiduciary on your behalf if your prior plan was revoked. Not updating or creating a new plan could also subject your estate to probate, along with the substantial costs and time involved.

Conclusion

It is recommended you seek legal advice immediately while navigating a divorce, or after one, to assist with your estate plan. As you can see, there are many legal hurdles in creating an estate plan during or after a divorce, and consequences for failing to create a plan correctly.