(National Advisors Trust) Even when a divorce is amicable, it’s still one of life’s most emotionally and financially challenging transitions. Between dividing assets, reshaping routines, and helping your loved ones adjust, it’s easy for important details to slip through the cracks.
One detail you don’t want to overlook is your estate plan. If it isn’t updated, your hard-earned assets could unintentionally pass to a former spouse, or your children’s future may not be protected the way you intend.
This guide can help navigate revising your estate planning documents to reflect on your current life, your family’s needs, and the legacy you want to leave.
Why Updating Your Estate Plan Matters
After a divorce, the people and priorities in your life can change dramatically. If your estate and trust plan isn’t updated:
- Ex-spouses may inherit property unintentionally. Although many jurisdictions have enacted legislation to automatically revoke certain beneficiary designations in the event of divorce, it is critical to reevaluate beneficiary designations, rather than relying on what you hope the laws of your state will provide.
- Your children might not be fully protected. Guardianship, trusts, and beneficiary designations may need revisiting to ensure your children’s best interests are met.
- Decision-making authority may be outdated. Your financial power of attorney and healthcare directives may still name your former spouse, giving them control over critical financial or medical decisions you may no longer want them to make.
Smart Moves to Make Now
The first and most important step is to meet with your estate planning team to ensure your estate planning documents accurately reflect your current circumstances and intentions. Together, you can:
- Review and revise your will and trusts. Remove references to your ex in your will and adjust distributions to reflect your current family structure. Decide if you want to revoke or amend any existing revocable living trusts. Irrevocable trusts—such as marital trusts, intentionally defective grantor trusts, or grantor retained annuity trusts— are more complex and should be specific topics discussed with your attorney prior to finalizing your divorce.
- Update beneficiary designations. Don’t simply rely on default rules under your state statutes following divorce, review and revise any beneficiary designations in order to reflect your current wishes.
- Reassess powers of attorney and healthcare directives. Update the people who have the authority to make financial or medical decisions on your behalf if you become physically or mentally incapacitated.
- Revisit guardians and trustees. If you have minor children or pets ensure their guardianship arrangements reflect your current preferences. If your former spouse serves as trustee consider appointing a (neutral) experienced corporate trustee as replacement.
- Adjust for your new financial reality. Make sure your estate and financial plans align, including using trusts or other strategies to help manage and reduce gift and estate tax exposure.
Tip: As part of the negotiation and ultimate resolution of economic issues of your divorce, consider asking your spouse to disclaim, renounce or waive any interest in an irrevocable life insurance trust (ILIT), otherwise you may need to petition the court to resolve beneficial interest issues or consider creating a new ILIT to purchase the policy from the original trust.
Key Legal Factors to Consider
Where you live plays a major role in how your estate plan is affected by divorce—and what updates are required. State statutes and federal regulations can determine who inherits your assets and who is authorized to act on your behalf. Keep in mind that1:
- Automatic revocation rules differ by state. Some states remove an ex-spouse from wills or trusts—and may also revoke their roles as executor or trustee—while others do not.
- Federal law can override state protections. Certain Insurance contracts or Retirement accounts like 401(k)s governed by ERISA may still pass to an ex-spouse if they remain the designated beneficiary, regardless of state law or your will.
- Community property states have special rules. Assets acquired during marriage are generally considered jointly owned, which can affect how negotiations are handled during divorce proceedings or how property is ultimately divided, requiring updates to your estate plan after divorce.
Tip: If you’re remarrying and want to protect your assets in future proceedings, consider an antenuptial agreement or asset protection or other irrevocable trust funded prior to marriage with separate property..
FAQ: Updating Your Estate Plan After Divorce
Q: Does divorce automatically remove my ex-spouse from my will?
A: Not always. While some states automatically revoke an ex-spouse’s rights under a will, it’s important to review and confirm this with your estate planning attorney.
Q: Should I change my trustee or successor trustee?
A: Yes. If your ex-spouse was named, consider appointing a corporate trustee with a proven track record and strong knowledge of trust accounting to fulfill these important roles.
Q: What about life insurance and retirement accounts?
A: Beneficiary designations on these accounts are not automatically changed by divorce. Review and update them to match your current intentions.
Q: How soon should I update my estate plan after divorce?
A: Ideally as soon as the divorce is finalized. Waiting could result in unintended consequences for your loved ones.
Q: Can I still leave something to my ex-spouse if I want to?
A: Yes. You can intentionally leave assets to an ex-spouse if that aligns with your wishes—but it must be clearly specified in your updated estate plan.
The New Year Is the Perfect Time to Review Your Estate Plan
As with any major life change, taking the time to update your estate plan ensures your loved ones, your assets and your wishes for your affairs are protected.
By addressing these changes proactively with your advisory team today, you can create a sense of security and peace of mind for the next chapter of your life. If you don’t have an advisor, connect with one in our growing national network of 6,000+ professionals.
Sources
1 https://www.thechamberlainlawfirm.com/blog/what-happens-to-your-estate-plan-if-you-get-a-divorce/
