8 Estate Planning Moves If You Are Getting Divorced

8 Estate Planning Moves If You Are Getting Divorced 956x538 blog

Summary

  1. Update your health care docs
  2. Change your power of attorney
  3. Check if some things can’t be changed
  4. Update your will
  5. Leave something to soon to be ex-spouse?
  6. Review pre-nup
  7. Amend your trust
  8. Revisit everything once divorce is final

[Edited transcript]

1. Update your health care docs

Janice:             Yes. So this opens up with divorce is not easy. Boy, is that the truth. It’s difficult emotionally, you have a lot to do, a lot of decisions. So the first thing to talk about here, they’re going through your different estate documents, is updating your healthcare proxy. So if you’re in a car accident, end up in the hospital, who’s gonna make the healthcare decision for you? Do you want it to be the spouse that you’re divorcing? Do you have somebody else in mind? Just something to really think about, if something happens.

Anthony:            So you know, before we get too deep into this, I want to really just caveat it. This article gets into some real nitty-gritty details, so I just want to remind everyone, this is a podcast, this is not legal advice. You need to talk to, if you’re in this situation, you need to talk to your own personal professional advisor. If you’re looking for someone, contact us through our web page, we can connect you with someone. But this is not the advice for you in particular. This is a general conversation about general concepts.

Janice:             Absolutely, yes. This is one of those where it is so important, with every move you make, to talk to your attorney first. Everything that we cover.

Anthony:            I mean, I think we can caveat every one of these eight estate planning moves if you’re getting divorced. They should all be checked with both your divorce counsel and your estate planning counsel.

Janice:             Yes.

Anthony:            Because there’s a lot of nuance here, yeah?

Janice:             Oh, yeah, and it gets right into, are you allowed to do it? You’re in the divorce process, which is pretty complicated. So I wouldn’t make any of these moves without talking to your attorney for both first.

2. Change your power of attorney

Anthony:            So before you jump ahead to number two, Janice, I want to give an overview of New York, I guess, law, and again, check with your local counsel. But in general, upon a final divorce judgment or decree in New York, meaning a formal divorce, a lot of things will automatically get unwritten. Meaning if your spouse is in your will or is a beneficiary on certain types of accounts, life insurance, upon a final court-ordered divorce, the spouse is sort of erased from all those documents. Even if the name is still there, they just sort of skip that entry, right? They treat the spouse as pre-deceased. But the problem is, at least from what I’ve seen in my experience, that very gray period between when you’re starting the divorce process and when you get that formal court order. Those protections don’t exist, that wipe-away law doesn’t exist. So you need to take steps now, unless you want your soon-to-be ex-spouse to inherit or whatever, be in control, if you were to pass away in between. And I have seen it happen, I’ve had some very sad situations. So with that downer, please, jump ahead to number two.

Janice:             But like you said, it’s that gray area. But where I am in Pennsylvania, the laws are different. So you would definitely have to talk to somebody before you made a move, because things aren’t automatically erased at the end. So it’s different depending on what state you’re in, which is really interesting. You cross the border and everything’s different.

Anthony:            Right.

Janice:             So change to your power of attorney. Same thing. You and your spouse probably executed powers of attorney at some time. If it’s durable, did you give them access to everything? Same thing. Is this something that you want to change now, wait until the end of the divorce process when you have your decree? I know I’m gonna say this probably 15 times, is talk to your attorney. Do you want to change this so they can’t make those decisions? But what are the implications of it legally before you make that move?

Anthony:            So I generally think power of attorneys are way over-powered as legal documents. They’re not even witnessed. You can just go to a bodega or stationery store and get them notarized, and then you can potentially have financial power over everything for another human being. To me that sounds kind of out of proportion with what it takes to get it done. But with that in mind, this is like one of the first things you should address if you’re on the cusp of starting a divorce process. Because, and I’ll just give you one example, just one example from my experience.

Anthony:            A couple getting divorced, they’re in the process. It’s not formalized yet, but it’s not looking good. And one spouse uses the power of attorney to take out multiple HELOCs, or home equity loans, against the properties of the other spouse, basically draining all the equity to cash and running off with it, using the power of attorney.

Janice:             And that’s a bad, that’s a big problem when you’re going through a divorce and …

Anthony:            This was huge, hundreds of thousands of dollars, just poof, gone. And I mean, I actually don’t know if it was undone. I really hope it was, but I’m sure if it was, it caused tremendous stress, legal fees, and time just to undo all that.

Janice:             Oh, that can’t be a quick process.

Anthony:            Yeah, just get rid of that power of attorney ASAP.

3. Check if some things can’t be changed

Anthony:            Number three, this is speaking to what Janice mentioned. Find out what you can and cannot alter. The laws are different in every state, and possibly county by county. So you know, can you change, in this gray period between when you start the divorce process and when you get the actual court order, can you change your beneficiaries on life insurance? Can you change your will? Can you change your 401k? You gotta speak to a professional and get advice on that, yeah?

Janice:             Absolutely. Because as you know, most of these accounts are part of the divorce and equitable distribution process, so if you make any of these moves unilaterally, that could have some pretty bad end results.

4. Update your will

Anthony:            Number four, update your will. It feels like this would be covered under what we just talked about. Find out if you can or can’t, and then again, from your professional, and if you can, make that change during the gray period.

Janice:             Yes, absolutely.

5. Leave something to soon to be ex-spouse?

Janice:             Deciding what to leave your spouse. And I read this as, again, your state has different rules about how much you must leave them. Can you take them out of the will? And I guess that kind of depends on where you’re at in the process, if they’re still your spouse in that gray area or if they’re no longer your spouse after. But that’s still something that you would definitely have to talk to somebody about, because what if you have children? What if you still own a house together? So you really can’t just say “I’m not leaving them anything ’cause I’m really mad.” But there are still financial obligations and different things that you have to take care of.

6. Review pre-nup

Anthony:            Number six, take a look at your pre-nup or post-nup. And you know, I think when they say take a look, I think it means remind your existing counsel that this exists so they can review it and tell you what to do.

Janice:             Yep, exactly.

7. Amend your trust

Anthony:            All right. Going ahead to number seven, amend your trusts. And I would put this in the same category of what we talked about before. Number one, check with your counsel if you can do something about this, if you can touch it or change it during this pre-court divorce period. And then if you can, make the necessary adjustments to cover yourself so that you’re not accidentally leaving everything to your soon-to-be ex, you know, if you pass away before the divorce is finalized.

Janice:             Absolutely.

Anthony:            When you have a will or trust set up and you have kids, a lot of times you are, you’re naming your surviving spouse, or formerly surviving spouse, I guess, as the trustee, for example, for the funds that would be held for your minor kids. Like if your kids were to inherit a part of it but they haven’t reached 18 or 25 yet, there needs to be an adult who supervises that money. So the question is, okay, I’ve cut my spouse out of my will, but what is my relationship with her?

Anthony:            Okay. In terms of our kids, I mean, will she remain their trustee, and will she remain their guardian? And that’s a little dicier just ’cause of biological issues. But will she be in charge of the money that I’ll leave for my kids? That’s something you need to think about.

Janice:             You know, there are a lot of divorcees that have a great relationship, that that would be an okay situation. If you sit and talk to your financial advisor and your attorney and say “You know what, we actually are okay, this might be the best situation.” So it really may work that they’re still the trustee.

Anthony:            Just be aware that’s something to think about, yeah.

Janice:             Yeah, you have to … what type of relationship, what’s the financial situation? There’s so much that’s involved with making that decision.

8. Revisit everything once divorce is final

Janice:             Revisit the plan after the divorce is finalized. So when you get the decree, it’s over, I still don’t think you could just make all these quick decisions. I think you should still talk to somebody, and if you’re gonna change beneficiary designations, ’cause you want to make sure. You might have signed a plan for everything to be distributed. So you have to make sure you’re going with exactly what you signed. How is this gonna end? And make sure that you’re doing it correctly.

Anthony:            So yeah, like we said, for New York at least, there’s this sort of gray period between when you start the divorce process and when you get the court-finalized divorce. So once it’s finalized, just update everything. Make sure that the new post-divorce plan is what you want. And again, just, I mean, I can’t stress this one enough on this talk. All of this needs to be reviewed by your divorce counsel and your estate counsel.

Janice:             Oh, yes.

Anthony:            Yeah, there’s too many moving parts, too much at stake.

Janice:             This is not something you should just go do or take lightly or do unilaterally. You should definitely have somebody that you’re talking to, your attorney, that gives you the correct moves to make.

Links

https://www.forbes.com/sites/christinefletcher/2018/06/19/8-estate-planning-moves-if-you-are-getting-divorced/#624853db6419

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