Estate Planning During Divorce
If you’re going through a divorce, updating your estate plan is an important part of moving on with your life. It’s important to understand that you are technically legally married until the judge signs the final divorce decree. This means that if you pass away before the divorce is finalized, your estranged spouse may be entitled to your estate, if you haven’t made or updated your estate plan.
If you do have an estate plan that mentions your soon-to-be-ex-spouse, your wishes may have changed from the time the paperwork was drawn up.
The experienced Colorado divorce attorneys at Litvak, Litvak, Mehrtens and Carlton, P.C. explain how to update your estate plan as you move through a divorce. Some estate planning documents can be changed immediately with the help of an attorney. For other documents, you’ll need to serve notice to your soon-to-be-ex-spouse and file with the court, in order for the change to take place.
There are some estate planning actions that you cannot take while a divorce is pending, and we’ll go over those, as well.
Call Litvak Litvak Mehrtens and Carlton, P.C., today at 303-951-4506.
How Does Divorce Affect Estate Planning?
Estate Planning Actions You Can Make While Your Divorce is Pending
Advanced Healthcare Directive
If you are going through a divorce in Colorado, you can usually change your Advanced Healthcare Directive immediately. This is unless, of course, you want your soon-to-be-ex-spouse to decide the critical care decisions on your behalf if something detrimental happens to you.
Durable Power of Attorney
You can either prepare or change your durable power of attorney, as well, while the divorce is pending. This protects your financial affairs should you become incapacitated before the divorce is final. In general, since an agent under a power of attorney will make financial decisions on your behalf, it’s always a good idea to choose someone that you trust completely, as well as someone who has good experience handling finances.
Many choose a child, sibling, parent, CPA or financial advisor.
Last Will and Testament
You can also prepare a new last Will and Testament during a divorce. Some also choose to change the beneficiaries on the current last Will and Testament. Another option is to revoke the entire last Will and testament altogether, while the divorce is still pending.
If you haven’t created a Will yet, now is a good time to do so. Because, if you pass away without a Will in place before the divorce is final, your soon-to-be-ex-spouse may very well inherit all of your assets.
Furthermore, if you forget to remove your ex-spouse from your last Will and Testament after the divorce is final, this will complicate matters for your heirs with respect to how your assets and property is distributed. Some will want to pursue what your final wishes would have been, and this can end up in expensive litigation.
Divorce Lawyer Can Advise on Changing Beneficiaries for Your Retirement, Insurance and Trusts
Trusts
We advise caution if you want to revoke or alter your trust before the divorce is final. You’ll want to consult with an estate planning or divorce attorney before doing so, because the process is complicated and will depend on the type of trust you have, as well as the language in your trust document.
One option you can do unilaterally is execute and file a disclaimer. Under certain circumstances, a disclaimer can be a very effective tax planning mechanism to keep property from being considered part of your overall estate. And, as such, potentially subject to estate tax, should you pass before the divorce is final.
Some trusts, specifically irrevocable trusts, which are typically designed to benefit your minor children, cannot be changed. It’s certainly always a good idea to ensure that your minor children are taken care of in case you pass away. However, if your soon-to-be-ex-spouse is the legal guardian for your children, you’ll need to understand that unless you name an alternate successor trustee, your soon-to-be-ex-spouse will control their money, until the minors turn 18 years old. If this doesn’t sit well, you may want to consider changing your guardianship designation on your estate plan.
If you are the grantor of a revocable trust, you’re generally allowed to revoke or amend your trust, as long as you comply with the express terms of the trust, as you see fit until your passing or incapacity. If you alone are the only grantor for the trust, this means that you can remove your soon-to-be-ex-spouse from said revocable trust. However, conditions to apply, and it can get tricky.
If you and your soon-to-be-ex-spouse created a revocable trust together, and then a divorce is filed, you may not change or remove assets from the trust without giving notice to the other party, or your soon-to-be-ex-spouse.
Life Insurance and Retirement Benefits
The same rules carry over to life insurance and retirement benefits. If your soon-to-be-ex-spouse is a beneficiary of a non-probate transfer, including:
- IRAs
- profit-sharing pension plans
- life insurance, and
- retirement benefits
you’ll want to consult with your attorney to address your situation before making any changes.
If you make any changes to the beneficiaries of a trust or insurance policy, you must be sure to follow the language of the revocation terms, as stated in the trust document. In Colorado, you must also file and serve notice to your soon-to-be-ex-spouse about his or her removal for it to take effect.
Estate Planning Actions to Avoid During Divorce
You cannot take certain estate planning actions during a divorce, unless you have the written consent of your soon-to-be-ex-spouse or obtain a court order. In general, any action that attempts to shift money or property away from a spouse ahead of a final judgement is prohibited.
Transferring or Hiding Assets
Whether the property is communal or separate, you cannot transfer or hide assets or property. This is punishable under civil code. Furthermore, spouses that attempt to hide assets are not viewed kindly by family court judges in Colorado, whatsoever. As such, they typically incur real and serious financial repercussions in the divorce rulings.
Funding a New Trust
Funding a new trust, whether it’s revocable or irrevocable, is prohibited during a divorce. Also, you can’t create a non-probate transfer or modify a non-probate transfer in a manner that directs assets away from your soon-to-be-ex-spouse.
This includes:
- IRA,
- life insurance,
- benefit plans, and
- revocable trusts.
Cashing Out or Borrowing Against Insurance Policies
If child support or spousal support is an issue during your divorce, you cannot cash out or borrow against insurance policies. This includes life, health, disability or automobile insurances. You also cannot cancel those policies or transfer the funds into a different account.
What Happens to a Life Estate in a Divorce?
This will depend on the terms of your divorce and financial settlement. Ex-spouses can make a claim on the estate if they can prove they were being maintained by the deceased.
So, if you are financially maintaining your ex-spouse after you’re divorced, or if you pay spousal maintenance or alimony, and you don’t include them in your Will, he or she could potentially make a claim.
If you don’t want your former spouse to inherit from your estate after your death, you’ll want to make sure your executors are prepared in case of a challenge, and write your Will in a way that gives them flexibility to negotiate, if necessary.
Does a Will Stand After Divorce?
Divorce doesn’t revoke a Will. It also doesn’t mean your Will from before you were married will come back into effect. Your current Will remains valid. However, for inheritance purposes, your ex-spouse will be treated as if they had died when your marriage dissolved.
This can have serious repercussions on your estate. If your Will doesn’t specify what happens in the event of your ex-partner’s death, the intestacy could apply. These rules come about when someone dies without a valid Will or if the main beneficiary of a Will is also deceased and the Will doesn’t state what should happen next.
If you don’t update your Will to reflect your wishes after divorce, your estate may be divided up differently than how you intended.
Experienced Divorce Attorneys in Denver, CO
While some parts of how you can change your estate plan during a divorce are simple and straightforward, other parts, you will absolutely need to consult with your divorce attorney. It’s important to work with legal representation that understands the intersection of family and divorce law, along with estate planning when sorting out your divorce affairs.
Contact Litvak Litvak Mehrtens and Carlton, P.C., to discuss your case today. Schedule a consultation by calling our Denver office at 303-951-4506 or complete our online form.