HOW DOES DIVORCE AFFECT MY ESTATE PLAN?
On September 20, 2016, news broke of the divorce between Brad Pitt and Angelina Jolie. The high-profile split of the world-famous Hollywood couple ‘Brangelina’ teach us some key lessons about how divorce can affect your estate planning.
For ‘Brangelina’, their 12-year relationship reportedly amounted to over $550 million in earnings between the two, according to Forbes. Although the average person does not have that much money to worry about in a divorce, it is definitely worth the time to amend your estate plan with your estate planning attorney so that it reflects your current life accurately.
Fortunately for ‘Brangelina,’ their prenuptial agreement signed before their marriage in 2014 allowed them to avoid financial and legal conflicts over their finances and properties.
But it is easy to forget that your ex-spouse may still be entitled to receive a portion of your estate if he/she is listed in your will or living trust.
Here are 3 steps to take to ensure that your estate plan matches your most current interests and wishes, especially if you don’t want your ex-spouse to inherit your assets upon your death.
1. Create a New Will to Revoke Your Old One
Although you may revoke your outdated will by tearing it up, you risk there being other copies out there, or you may risk not having any will in place if you do not create a new one immediately. The best option is to make a new will with your estate planning attorney.
Creating a new will automatically and legally revokes all previous wills, and allows you to do the following to reflect the most up-to-date changes in your life:
- Leave property and assets to the people of your choosing
- Appoint an executor to administrate your estate in the event of your death (this is usually a spouse so it is important to change)
- Assign a guardian to care for your children should neither parent be able to do so
California law mandates that if your divorce occurs after you have made a will, then any assets, designations, or gifts made to your ex-spouse are automatically nullified (Cal. Probate Code § 6122).
However, this law only takes effect once the final decree of divorce is issued, not before. This means that anything within your will pertaining to your spouse is still valid during the divorce process, and for this reason you should not rely on this law.
2. Review and Revise Your Beneficiary Designations
Drafting a new will after your divorce is a great idea, but it is not always enough to cover all your valuable assets. Many financial and insurance assets circumvent the legal bounds of a will, and the beneficiaries you have named in these assets may not be updated like your will is.
Thus, it is important to review and revise your beneficiary designations for assets such as:
- Your retirement funds and accounts (e.g. 401(k)s and IRAs)
- Any of your life insurance policies
- Your payable-on-death (POD) bank accounts
- Your brokerage accounts and investments
It is safest to assume that your divorce decree won’t revoke any designations to your ex-spouse. Your plan of action should be to talk to your financial institution(s), employer, and/or brokerage firm about naming someone else to inherit your financial assets if your ex-spouse’s name appears in any of your beneficiary designations.
3. Draft New Powers of Attorney
A Power of Attorney (POA) is a legal document that you create with your attorney to designate an agent (or “attorney-in-fact”) to legally act on your behalf should you become physically or mentally incapacitated.
These documents are an important part of your estate plan, and it is recommended to have two types:
- Power of attorney for healthcare (so that someone you trust can make medical decisions for you)
- Financial power of attorney (so that someone you trust can handle your financial matters until you are able to yourself)