Estate Planning Changes after a Divorce or Separation
The literal meaning of divorce is to “turn to different ways.” Once the decision is made to part ways, the physical and emotional separation is usually immediate, but the legal severing of ties can take months, if not years. Even in the most amicable divorces, does anyone really want a soon-to-be-ex making life and death decisions on their behalf? Or inheriting that vacation home your divorce attorney just spent hours securing? Of course, a matrimonial attorney is the first step, but people often wait until the divorce is final before reaching out to an estate planning attorney. A divorce can be emotionally draining and expensive – so the last thing anyone wants is yet another lawyer in their life. Or maybe you think that the divorce will be quick (rarely and certainly not during this pandemic). Or nothing else could possibly go wrong (wishful thinking). Or the ex will likely go first (not nice). I get it. But let’s explore why you may want to at least think about it.
When a divorce is pending, there are certain changes you cannot make to your estate plan.
Change of Beneficiary Forms: DON’T
Just to get it out of the way: Do not remove your spouse as beneficiary on your life insurance or retirement accounts. This would violate the “automatic orders” of New York’s Domestic Relations Law. These changes can only be made once the divorce is final.
Almost Everything Else: DO
Change Your Will or Trust
Either with or without a Will, your spouse will get the bulk of your assets – even if there is a pending divorce. But you can limit the spouse’s distribution to a one-third elective share.
If you have an existing Will, most likely your spouse is the executor of the Will and all of your assets go to your spouse. Except under very limited circumstances, this would not change even though you are living apart pursuant to a separation agreement. If you have a child, my guess is that is who you would want to inherit your assets instead. Or your dog. Really anyone but the spouse. You do not have to inform your spouse that you changed your Will, but he or she would have a right to petition the court for the greater of $50,000 or 1/3 of your estate if the divorce was still pending. This is better than all of it.
If you have no will and pass away before the divorce is final, your spouse receives 100% of your estate under the New York State intestacy statute if you have no children. If you have children, then your spouse gets the first $50,000 and half the remaining. The other half is split amongst your children, whether they are adults or minors. One-third is better than 50-100%.
If you have joint minor children, your ex will end up being guardian of those assets and essentially manage the money you leave your children. Instead, set up a trust that is triggered on your death and name someone else as Trustee to manage your children’s assets.
Change Advance Directives
If you have a Health Care Proxy, you probably named your spouse. Upon divorce, the healthcare proxy is automatically revoked. But, while the divorce is pending, he or she is empowered to make medical decision for you if you cannot do so for yourself.
What if you do not have a healthcare proxy? It does not matter, under New York’s Family Health Care Decisions Act, your spouse is first in line to make medical decisions for you. Do you really want your soon-to-be-ex making life and death decisions in the middle of a divorce?
If you have a Power of Attorney naming your spouse as agent, then her or she can legally do conduct business and make financial transactions. If you do not change (or revoke in writing) your Power of Attorney, your spouse technically has complete access…not if you become incapacitated, but right now.
Those are just the most basic reasons to consult an estate planning attorney pending a divorce. You may have an irrevocable trust which could be amendable or need a new estate tax plan. When married, the estate tax is usually avoided, in part, by utilizing the unlimited marital deduction. You will need a different method. Do you own a home together as tenants with rights of survivorship? Maybe your attorneys can agree to sever pending the divorce. Don’t just hold your breath until the divorce is finally over – knowing you have options is empowering.