Divorce And Estate Planning: What Changes Things From Here?

In our previous blog post, we discussed the implications of marriage on estate planning. Our follow-up post here focuses on when things with the first marriage don’t work out and end in divorce. What are the consequences to your estate plan in that event? We’ll also talk about what could happen with your estate plan if you remarry, including what your new spouse may and may not be likely entitled to.

Let’s begin with a fairly common scenario to illustrate how divorce can have a real impact on estate planning, more than many assume it to:

Karen is married to John, her first husband. In time, they decide to divorce and Karen marries Mike, her second husband. In many cases, if Karen created a will long ago with her first husband, that will is going to reflect that. So, at any point in the documentation that it refers to Karen’s “spouse,” it’s going to mean her first husband, not her second. In other words, Mike will not necessarily get the assets that John would have received.

In fact, if you get divorced and your will was drafted and signed during your marriage, your ex-spouse is treated as if they had passed before you. That's a good way to keep your ex from inheriting all your assets when you pass away if you haven’t redone your will.

It also means that your new spouse, if you have one, won’t necessarily get what you want them to either or any additional rights. It’s not easy to “swap” the spouse and ex-spouse in the will and has to be done just right if this direction is pursued. Even so, it’s rarely a good idea to do so as a new marriage usually brings new financial circumstances. It doesn't ensure things will follow a path that fits your new circumstances as opposed to your old circumstances (think of it more like a plan for the old circumstances with a bandage on it).

New Considerations If You Remarry

If you remarry later on, you should seriously think about at least reviewing your estate plan, if not completely redoing it.

Let’s give you a good example. There are plenty of assets that don't go through your will. That life insurance policy that you get through your job? It will go to whoever the beneficiary you designated is, often including even your ex-spouse if that's who is listed as your beneficiary. Imagine how thrilled your new spouse will be when they found out that your ex is getting the life insurance money!

Staying in the life insurance realm, the divorce decree may say that you have to maintain a life insurance policy on yourself that's going to cover any remaining maintenance (another term for alimony) that you would have had to pay if you hadn't passed away.

Unfortunately, this situation is not all that uncommon since people simply haven’t looked at their estate plan in a very long time and in the process, may forget about elements like beneficiary designations until it’s too late.

Even though certain things have a degree of protection under federal law to ensure some assets go to your current spouse, many other things such as a life insurance policy, 401(k), payable upon death account at the bank and more will go to the beneficiary that’s been named, regardless of who the person is.

The good news? It’s very easy to change this beneficiary designation, even though many people don’t think to do it.

What Happens To Your Kids?

We’ve talked about what happens to your assets, but let’s not forget about those most precious of assets – your children. What are the implications for them in your estate plan during a divorce?

Another scenario: Let’s say that when you were married, the guardian of your kids was going to be your sister-in-law and her husband. Now, times have changed and you don’t necessarily want them being the ones raising your kids anymore. Perhaps you want someone on your side of the family raising your kids instead of someone on your ex's side. Simply getting a divorce is not going to remove your sister-in-law from the position she’s in.

The same holds true for who your executor is. If you had your ex's brother as your back-up executor (in the event you named your ex and if your ex was no long alive, your ex's brother would step in), these in-laws are still going to be the ones in your will administering your estate, controlling what goes where.

Depending on the way your will or trust was written, stepchildren may or may not be disinherited during a divorce. Taking to an estate planner can help clarify what your current estate planning documents describe on the subject and how to change that language if and where necessary.

Prenuptial Agreements, Divorce And Your Rights

We touched on prenuptial agreements in our previous post on marriage and estate planning, but divorce is where prenuptial agreements typically have the biggest impact and therefore, are more frequently a consideration.

Does signing a prenuptial agreement affect your rights under your spouse’s will or trust? Not directly. It can dictate what they have to put in their will or trust – and if they don't do what the prenuptial agreement says, then you can potentially sue.

It’s not uncommon for a prenuptial agreement to essentially say, "In the event of divorce, you can have the house but when you pass, it's going to our children (as in the children from your first marriage). It's not going to your future wife or your future kids."

If you've gone through a divorce there may be terms in your divorce decree or your settlement agreement with your ex-spouse that demand a certain asset go to a certain person when you die. If you don't do what that says in your estate plan, your ex can potentially appear in probate court and say, "Judge, here's the agreement that said my ex-spouse had to do this."

Divorce – much like marriage, childbirth, adoption, a significant inheritance and other major life events – can represent a substantial change in your circumstances. It’s not a time to guess or assume that your estate plan will emerge without impact. Talk to our estate planning attorneys at Gurney Law Group about these changes so that we can compare where you are in life today to the estate plan you originally put in place. You’ll have a greater understanding of any options you may have before you and the potential events that lie ahead should you wish to make some important changes.

Don’t put that conversation off. Call Gurney Law Group today at 312.929.0974.

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