Divorce Planning and Estate Planning

Before-your-divorce-25248_462x306If you have just gotten divorced, you may be focused on getting on with your life. But make sure you also have updated the financial arrangements that kick in at your death. Failure to do so — or to alert all relevant parties to the changes — could result in certain assets and benefits unintentionally going to your former spouse or his or her family upon your death.

A MarketWatch article, first reported in The Wall Street Journal, reports that lawyers in New York are citing a recent court case as an example of how not to plan your estate. In that case the family of Robyn Lewis, who died five years ago at the age of 43, has been fighting with her former in-laws.

They stand to inherit a $200,000 home even though she and her husband divorced eight years ago.

The MarketWatch article, titled Just divorced? Don’t forget to separate your estate plans, says Lewis executed a will in 1996 that named her then-husband to receive her property after her death. The property included the house—a home that had been in her family for generations. In her will she designated her then-father-in-law as the secondary beneficiary.

New York’s probate laws stipulate that a divorce automatically cuts out the ex-husband from a will. However, the laws do not cut out the secondary beneficiary—in this case, Robyn’s ex-father-in-law. He brought a copy of the 1996 will to the court.

Robyn’s family claims that she wrote a new will after her divorce that changed the beneficiaries, but they can’t find it to prove the change. As a result, last year a New York appellate court decided to uphold the 1996 will. Lawyers for Lewis’s family are appealing.

The lesson here is to stay on top of your estate plans. For Robyn (before she passed) and her family, it means drafting that new will and making sure that key individuals have a copy or know where to find it. Be certain that all of your estate planning documents— not only your will—but your power of attorney and health care proxy—clearly state your wishes and intentions.

Divorcing couples who have used an estate planner are counseled to work individually with a new attorney to avoid conflicts. A qualified estate planning attorney will ensure that new documents designate the correct individuals and state that they revoke and replace the older documents. Remember, beneficiary designations also should be reviewed and changed. The proceeds from these accounts and policies pass directly to the named individuals—regardless of what a will may say. The original article suggests that you obtain written confirmation from an insurance company that they received and made your beneficiary changes.

In addition, IRA money can be divided and rolled over into separate accounts by sending a letter to the plan administrator with proof of the divorce. Qualified retirement plans, however, such as company-sponsored ones, take a little more planning. Speak with your attorney about how to go about doing this because it involves a court order called a Qualified Domestic Relations Order. This gives you the right to a portion of the spouse’s 401(k) or other qualified-plan assets, pursuant to the divorce settlement.

For more information about estate planning, please visit my estate planning website.

Reference: MarketWatch (The Wall Street Journal) (February 23, 2015) Just divorced? Don’t forget to separate your estate plans

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