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How Divorce Impacts Your Estate Plan


When you’re in the midst of a divorce, you’re probably not thinking about estate planning or your will. But if you’re divorcing, you should think about the impact a divorce can have on an estate plan. Because even if your divorce is amicable, you may want to make some changes to the paperwork. That includes your will and power of attorney. Not getting this part of divorce done correctly can mean long-term repercussionseven after your death. Let’s go over the steps you should take with your estate plan during and after your divorce.

Ask a financial advisor how to protect your assets against potential loss due to a potential divorce.

Revamp Your Will

Maybe you currently don’t have a last will and testament. If not, that would be a good project to start when you catch your breath after your divorce.

If you do have a will, and if it has been written so that your soon-to-be ex-spouse will be receiving all or most of your belongings, you may want to change your instructions on how to split up your assets after your death. There might also be assets that you were going to give to some of your ex’s family members but no longer wish to.

State laws handle the assets in a will differently. And in many states, gifts to your ex will be automatically revoked. But if you want to have control over your assets after you are gone, you should at least examine and perhaps rework your will.

Tweak Your Trust

If you have a trust in your estate plan, your spouse may be designated as the trustee. You may want to change who will be dispersing your assets someday. Conversely, if you don’t have a trust and have children or other relatives you would like to someday inherit your assets, this may be the time to set one up.

You may consider setting up an irrevocable trust. A domestic asset protection trust (DAPT), for example, could be used to transfer assets to a trustee on behalf of your children. The assets wouldn’t be considered marital property at this point so your spouse would not be entitled to them.

Of course, this means you wouldn’t be able to go back and cancel the trust later to reclaim the assets. So you’d need to be fairly certain that you wouldn’t need any of the assets that you plan to place in the trust down the line.

Take a Look at Your Insurance Policies

SmartAsset: How divorce impacts your estate plan

You will eventually need to remove your spouse from all of your insurance policies, from health to homeowners to car insurance. And don’t forget about life insurance. If you have young children that your ex-spouse will be raising, you may want to keep your ex-spouse as a beneficiary.

If you were covered on your spouse’s health insurance plan while you were married, you’ll need to see about getting your own policy after your divorce. The first place you’ll want to look for coverage is through your employer, but if your company doesn’t offer insurance you’ll have to shop around for an affordable policy.

You’ll also want to consider the changing the beneficiaries on your life insurance policy if you’re worried about your future ex-spouse cashing in if something happens to you.

Change Your Power of Attorney

If your spouse is listed as your medical or financial power of attorney, you’ll likely want to change that, too. Doing so entails five steps.

Notify the person currently holding power of attorney

If you would like to make changes, make sure to notify your existing power of attorney right away. This is particularly urgent if you are reducing or eliminating their authority. You would like them to stop taking action right away, or to know that these changes are coming so that they don’t make future plans. You will also have the chance to discuss your needs, and how best to tailor any changes that you’re making.

Put the change in writing

You can only change or revoke a power of attorney in writing. States require a specific form for power of attorney. These forms are helpful, and you may find it valuable to pull one from a state or local website. You can also draft a simple letter to your power of attorney, as any written notice will meet the law’s requirements. In either case, be certain to clearly spell out the changes you are making. This holds true whether you are modifying the scope of your current assignment or ending it altogether.

Include all required language

This is where a form can also come in handy. Most states have specific requirements for what language a change or revocation must include. Typically this involves your name, the name of your power of attorney, the date on which the change or revocation takes effect, and sometimes the date on which the previous power of attorney took effect.

That said, should you be unsure of the requirements of your particular state, most (if not all) states will also enforce a blanket revocation. This would involve: Your name, the name of the recipient, the date on which the revocation takes effect, and language that you are revoking any and all existing power of attorney assignments. Essentially, most states will recognize language along the lines of “As of July 1, I, Michael Smith, revoke any and all existing power of attorney assignment held by Jane Doe.”

Notarize and if necessary record

In general you should notarize your document. This might be the only part of the process that costs any money. For modification this is an absolute requirement. To change your power of attorney, you must have the document notarized in the same way that you must notarize the document assigning power of attorney in the first place. Some states require you to notarize the document rescinding power of attorney, and it is always best practice. However, as a general rule, many, if not most, states will allow you to to cancel someone’s power of attorney through simple written notice.

Notify all concerned parties

As a final step, you should notify anyone who would have reason to know about your power of attorney relationship. Specifically, reach out to anyone who might regularly work with your power of attorney, or who should otherwise know that this grant of authority has ended or changed. While this step is not legally necessary, it might save considerable time and confusion down the line.

Split Up Retirement Accounts

There are a number of factors to consider as retirements are split.

Assets are split differently depending on a number of factors, such as the type of account and when the earnings were received. Before defined contribution plans can be split, the court must issue a qualified domestic relations order (QDRO). In most instances, your attorney drafts the QDRO before sending it to the divorce court. The court will determine which properties are marital and which are separate.

Once a judge signs it, the QDRO makes the asset split official, and it allows plan administrators to enforce it. However, these administrators must first accept the QDRO. This applies to all plans governed under the Employee Retirement Income Security Act (ERISA) of 1974. These include the following:

  • 401(k) plans
  • 403(b) plans
  • Thrift Savings Plan (TSP)

Bottom Line

How Divorce Impacts Your Estate Plan

Divorce is stressful enough, and so it may not seem fair that you should be also thinking about end-of-life issues. But to not think about it can mean a lot of unpleasant financial surprises down the road, either for you, your ex or your beneficiaries. Marriage vows involve couples declaring fidelity until death do they part. Logic follows then that if your marriage is shutting down earlier than you anticipated, you will both need to resolve issues related to your mortality.

Tips for Navigating a Divorce

  • A financial advisor is an important member of the team when you are going through a divorce. Luckily, if you don’t already have a financial advisor then finding one doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area. And you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
  • Divorce can be a financial disaster for one or both former partners. The sky is the limit for legal bills in a highly adversarial divorce. If splitting up assets requires selling real estate, investments or business interests in a down market, it can be more expensive yet. Fortunately, there are moves you can make to protect your assets from divorce. This includes obtaining a prenuptial agreement and residing in a state where divorcing spouses retain their separate property.

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