How to Estate Plan During a Divorce

Written by Patrick Hicks, Head of Legal @ Trust & Will

Though rates seem to be declining, over half a million Americans file for divorce annually. As we know, divorce presents some challenging obstacles with personal and emotional complexities that can weigh heavily on partners as well as their family and friends. 

But the complications of legal separation don’t end there. In addition to handling delicate inter-personal matters, divorce can have a severe impact on the financial interests of both parties. From monitoring monthly income to allocating child support and alimony, the implications of this process oftentimes feel chaotic.

One aspect many couples don’t expect to struggle with during the divorce process is how their estate plan will be affected. Anticipating this and acting ahead of time can help you make sure your will is in order and positioned to support your loved ones when you pass away. In this post, we’ll take a look at four steps to take to manage your estate when you file for divorce.

1. Update your will and trust

Trusts and wills are the cornerstone of your estate plan, so you’ll want to start implementing changes here before or during the divorce process so that you can ensure that all of the details reflect your preferences once you and your spouse are legally separated. Not doing so could mean that your soon-to-be former spouse is awarded with your tangible and intangible assets when you die. Conversely, some states void estate documents following divorce, which can further complicate how your assets are handled. They may also restrict the ability to change an existing trust while a divorce is pending, but you can start planning and get updated documents ready to sign as soon as that restriction is lifted.

To make sure that your property and general wishes are handled appropriately postmortem, it’s essential that you consider how you can change your estate planning documents to benefit your surviving relatives. Beneficiary designations is also an important step after divorce. That includes beneficiaries on life insurance plans and retirement plans.

Keep in mind, trusts are often more difficult to alter than wills because they go into effect as soon as you create it while a will only goes into effect when you die. It’s best to act in advance and seek the help of a professional advisor to ensure you’re following best practices when adjusting your estate plan.

2. Determine how to reallocate your assets

Depending on which state you live in, you may not have much of a choice when it comes to redistributing the assets in your estate once you get divorced from your spouse. Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin are all considered “community property states.” These states classify most assets acquired during a marriage as community property, meaning that each spouse holds equal ownership over the property.

For this reason, disinheriting a spouse from your estate can be extremely difficult. If you live in a community property state, there is little that the state will allow you to do to prevent your spouse from receiving half of the assets you bought during your marriage.

If you live in a state that’s not considered a community property state, you may be able to disinherit your spouse but it’s often a challenging process that could take a substantial amount of time. The limitation of disinheriting a spouse ends upon divorce but can be a complication in trying to plan before the divorce is finalized. Seeking professional help to rewrite your estate is typically the best course of action to help you save time and ensure that you’re accurately—and legally—reflecting how you’d like your assets to be distributed.

3. Adjust power of attorney

Power of attorney (POA) is a position that is designated to a specific person in a document that is separate from your trust or will. This position essentially allows the person of your choice to act as your proxy in the event that you are unable to do so on your own. Your power of attorney can make financial, medical, and other personal decisions for you, depending which power of attorney status they hold.

• A general power of attorney can make business and financial decisions on your behalf, as well as handle life insurance and claims.
• A special power of attorney holds certain privileges that you designate ahead of time. Selling and managing real estate and collecting debts are some of the most common examples of what a special power of attorney can do.
• A health care power of attorney has the right to make certain health-related decisions on your behalf, typically in the event that you are unconscious or otherwise unable to make the decision on your own.
• A durable power of attorney is typically designated with the expectation that you will become mentally or physically unable to make personal decisions on your own.

When you drafted your will when you and your spouse got married, you may have elected them as your power of attorney. For many divorcees, the termination of a marriage would indicate that you would no longer wish for your former spouse to be in charge of your medical and financial affairs. If this is true for you, you’ll also want to change your power of attorney on your estate documents.

How do you choose a power of attorney?

If you decide to change your power of attorney as a result of your divorce, you may be wondering how to select their replacement. Since this person could be responsible for making important decisions regarding your livelihood, you’ll want to select someone that is trustworthy and has your best interests at heart. You can choose a friend, relative, or an attorney to act as your POA. You can also elect multiple people to act as your power of attorney, just be sure to draw clear expectations when you write your will, and communicate whether your POAs need to make decisions together or if they may act separately.

4. Reevaluate as needed

As you already well know, life circumstances change. Though estate plans are not designed to change often, the reality is, sometimes you need to make some difficult decisions. Following your divorce, don’t hesitate to review and adjust with your attorney if you need to, especially if the changes you made to your estate during your divorce were only temporary. Not adjusting after the divorce is finalized could mean that your changes are not actually enacted, which could be devastating pending your circumstances.

Bottom line

When planning your estate during a divorce, follow these four steps:

• Update your will and trust
• Determine how to reallocate your assets
• Change your power of attorney
• Reevaluate your plan as needed

Searching for more resources to help you navigate divorce and the separation process? Check out our most recent posts for advice, legal tips, and support to make this challenging time easier on yourself and your loved ones.

About the Author

Patrick Hicks is the Head of Legal at Trust & Will, where he oversees all estate planning offerings and corporate legal affairs. Patrick has been an estate planning and tax attorney for over a decade, previously working with individual clients to create customized estate plans for their personal and business planning needs. He believes new technologies will improve the legal industry and expand access to legal services, making it possible for everyone to access the help they need.

Go to this page about online divorce to learn more.