This story of a divorcing couple in Arizona demonstrates why you need to update your estate plan at divorce.
The couple, who were in their early 40’s and had been married for several years, had created a multi-million dollar business together. When they filed for divorce, the process became bitter and full of disagreements about small issues. They were thinking in the moment about the immediate dollars and cents, but didn’t consider what would happen with their assets at death.
One night, the wife had dinner with friends. Sadly, she died in a tragic car accident on her way home.
Neither she nor her husband had changed their wills. As a result, everything she had, including the half of the business that belonged to her, went to her husband. Her family was left with nothing.
In this case, an interim will could have stated that her share of the marital estate would go to her parents.
The lesson: during divorce, update your will to ensure your assets go where you want them to go, such as to your parents or to a child.
In addition to changing your will, you must also change the following:
Power of Attorney and Health Care Proxy documents
It’s essential you change your powers of attorney during divorce, to ensure that your financial decisions will not be made by your divorcing spouse, and also your health care proxy so that your divorcing spouse cannot make medical decisions for you.
Guardian for your minor children
If you have chosen a guardian for minor children in your will, any change will have to be agreed to by your estranged spouse. You cannot create an interim will that excludes the other parent as guardian, unless your spouse’s parental rights have already been removed.
Accounts with named beneficiaries.
While you are in the process of divorcing, you typically cannot change the named beneficiaries on 401(k) plans or life insurance policies, though if needed you might be able to obtain an interim order to authorize a change. Once your divorce agreement is in place, it might state which beneficiary designations can and cannot be changed. Be sure to make the appropriate changes.
Once your divorce is final, remember to review interim documents and other documents again. Any trust you have with your former spouse will have to be revoked or amended. The assets will have to be moved to a new trust.