Estate Planning for the Newly Divorced

/ September 13, 2018

 

Divorce is a time of massive change.  Change in schedule, change in routine, change in living situation, change in dynamic, change in budget – you name it, it changes after a divorce.  Many divorcing couples do not understand, however, that divorce should also be accompanied by a change in estate plans.  (An estate plan is, of course, a Revocable Trust, or a Will, Health Care Directive, Power of Attorney, etc.)  And once a divorce is final, the next change should be a new estate plan.

Once the judge signs the divorce decree, a newly single person should take a copy of the signed decree to an estate planning attorney.  The estate planner will draft a new estate plan that accounts for the divorce and the agreed to provisions in the signed decree.  Generally, such provisions include the following:

Real estate

How is jointly owned real estate, such as the homestead property, to be divided between the divorced couple?  Will the real estate be owned in joint tenancy or as tenants in common?  And most importantly, have both divorced persons signed a deed transferring the property into the other’s name, if necessary?  Keep in mind that Minnesota Statutes section 500.19, subdivision 5, provides that a divorce decree that does not address joint tenancy ownership, severs joint tenancy.  This is essential to understand in an estate plan.  If a person owns property as tenants in common, then that interest will go to that person’s estate upon death.

Life insurance

Does the divorce decree require one or both spouses to retain a life insurance policy making the ex-spouse a beneficiary for a certain period of time?  If so, an estate planner will need to take this into account when drafting a new plan, especially if a client has remarried.  Specifically, a client may want to leave assets to a new spouse, in which case the life insurance proceeds going to a former spouse will be unavailable to the client.

Future Child Support Obligation Buyouts

Provisions in a divorce decree such as a buyout of future child support obligations are not common, but they do occur.  Case law indicates they are against public policy.  But that does not stop courts from using them.  The purpose is to allow for a child support obligation to be paid in one lump sum, usually following the sale of property.  If the sale of the property has not yet occurred, then the sum accounted for in the decree should be considered off limits to the client.

Child Support or Spousal Maintenance

Some support obligations survive death.  So an estate planning attorney must discuss support obligations with a client to determine what assets will be available – and what claims may attach – to the client’s estate at death.  Even more important than discussing the divorce decree’s provisions is discussing whether the client and the ex-spouse have strayed from any of those provisions, or whether their wishes, expectations, and intentions are accurately represented in those provisions.  If clients act outside the provisions of the decree, the court may end up amending or modifying the decree to account for those changes.

Change in Fiduciary and Beneficiary Designations

A newly single person will want to name someone other than an ex-spouse as trustee, personal representative (executive), health care agent, power of attorney agent, and as a beneficiary on life insurance, 401(k)s, IRAs, and other financial assets.  Most divorce attorneys will counsel their clients on how to do so; but often an estate planner ends up finding the changes have not occurred.

In summary, it is necessary for an estate planning attorney to review the terms of a divorce decree before drafting a new estate plan.  A new estate plan will need to take relevant provisions into account to ensure there is no conflict upon the death of a divorced person.  An estate planner can also play an essential role in making sure all loose ends are tied up following a divorce.

 

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