Have you heard the old joke, “What is the number one cause of divorce? Marriage!” Bad humor aside, divorce rates are increasing around the world. The pandemic has presented couples an unprecedented challenge. It may be appropriate to review what actions should be taken by either party if there is a divorce.
This article will briefly touch on three areas that should be reviewed and revised accordingly. The areas cover your estate planning documents, the titling of your assets, and your beneficiary designations.
The core four of estate planning documents consists of a Durable Power of Attorney, Health Care Proxy, your Disposition of Remains Appointment, and your Last Will and Testament.
It is important to review the Power of Attorney and Health Care Proxy that allow a designated person to make financial and important health care decisions on your behalf respectively. You do not want a disgruntled ex-spouse to have this authority if anything happens to you before the divorce is final. A much-overlooked document is the Disposition of Remains Appointment. This appoints a person to carry out your wishes as to how your earthly body is taken care of after you are gone. This issue is one that arises in many extended and untraditional families.
If there is a pending divorce, you should immediately review any trust documents and your will. Wills can and should be changed during pending divorce proceedings. In some jurisdictions, a divorce will revoke any provisions to an ex-spouse under state law. For instance, if a person is divorced, dies, and failed to update his/her estate planning documents taking into account the divorce, some states may revoke the bequest to former spouses in their wills or other estate planning documents. However, many states do not have such a statute. The revocation of a divorce statute is only effective if the divorce is final (i.e. a decree) and does not apply during the pendency of the divorce proceeding. The lesson is, do not rely on state laws to remove the ex-spouse from your estate plan. Review your will to see if any dispositive provisions go to your former spouse, do not forget to check if they are named in any fiduciary capacity, and check any trust agreements that are in existence.
It is recommended that you should assemble a comprehensive and detailed inventory of assets owned, which should include how each is registered or titled. Usually this will be required at some time during the course of the divorce. Assets to retitle include real estate, bank accounts, and other registered assets. Jointly held real estate and financial accounts documents need your immediate attention with a pending divorce.
Do not overlook authorizations to access digital accounts, including financial accounts, email accounts, social media accounts, etc., that you may have given to your soon to be ex-spouse.
Beneficiary designations should be reviewed on life insurance policies, employee benefit plans, and your individual retirement accounts. You should contact each insurance company that issued a life insurance policy and ask them for a new beneficiary designation form to fill out and sign.
With employee benefit plans, the administrator should be contacted to request how the beneficiary can be changed. While most of the property interests are governed by state law, it is possible that Federal law may have an effect in certain cases. This is especially true if the company’s retirement plan must comply with ERISA regulations. The Employee Retirement Income Security Act of 1974 (ERISA) governs spousal rights in retirement plans.
Contact the custodian of your individual retirement accounts and inquire what steps need to be taken for the change of beneficiary to become effective. It is important not to rely on telephone instructions for the beneficiary change. Make sure to obtain it in writing and confirm it is sent and received by the appropriate recordkeeper.
Remember to review financial arrangements that include joint lines of credit, joint loan guarantees, and direct deposits into accounts that may have been titled or held with the soon to be former spouse.
Lastly, keep in mind that there are a number of assets that should be considered and reviewed because of their specific nature, including: closely held business interests, partnership interests, real estate held for investment purposes, artwork and collectables, private market interests with liquidity restraints, and aircraft or watercraft.
Hopefully you will not need this advice, but it may prove useful for someone you know going through a divorce.