Question: After 27 years, my wife and I are calling it quits. Although my matrimonial lawyer appears to be doing a good job helping me negotiate the financial settlement and navigate through the court system, when I ask about the changes I should make in my estate plan and investment strategies, he tells me it’s too early to talk about these things and that he only handles divorces. I am concerned about putting these important considerations on the back burner. How should I approach this without annoying my divorce lawyer?
Answer: We strongly disagree with this aspect of your lawyer’s advice. In our view, divorce is a transition that requires not only a complete revision of your existing estate plan for the ultimate distribution of your wealth, but also wholesale revisions of your retirement and financial plans during your lifetime because of reduced assets and cash flow.
What do you do? Since your matrimonial lawyer is not versed in these areas, we suggest that you hire an estate planner and contact a financial services professional to assist you. Due to potential tax ramifications of any settlement, we assume your lawyer has hired a tax professional to try to minimize adverse tax consequences. If not, contact one.
At a minimum, your estate planner should review the following documents 1) your will and codicils; 2) any trusts you may have signed; 3) the beneficiary designations of your annuities, insurance policies, employee benefit plans, IRA’s, and trusts; 4) whom you may have nominated as guardian or trustee; 5) title to real estate and other assets you own with others; 6) any partnerships or business entities you may own; 7) persons you have named as proxies to make your health care decisions should you beconme incapacitated; 8) general durable powers of attorney; 9) your personal, business, and investment assets, how they are titled, and their cost basis; and, if they are living, 13) your parents' estate plans.
Obviously, since your existing will or trust contains a plan which is no longer suitable, you should either revoke or amend these documents. Similarly, beneficiary designations on retirement plans, annuities, IRA’s, and life insurance must be changed. You should also assure that your documents are changed to prevent your spouse from serving as trustee. Your parents’ estate plans should be reviewed because they may contain gifts to you and your soon-to-be former spouse, or may create trusts for your children with your estranged spouse as alternate trustee. It is likely that given these circumstances, your parents will want to make changes to these provisions.
The law of most states provides that when your divorce, all provisions in your will concerning your former spouse will be revoked. But where there is a partial revocation, the contingent beneficiaries will receive the property which would have passed to your former spouse – and this might cause an unintended result. In addition, in most states, divorce does not revoke a disposition made to a former spouse in a revocable trust. And divorce does not generally terminate the rights of the divorced spouse as beneficary of life insurance, annuities, pensions, and IRA’s.
Bottom Line: Although there may be law in your state that will protect you if you do not make changes, we would not bet on it. You should not rely on the uncertainty of the law instead of adjusting your plan to reflect the realities of your divorce. Divorce is a circumstance that requires wholesale revision of existing plans.