Divorce Doesn’t Automatically Update Your Estate Plan

By: Rebecca Harvey

Divorce can change nearly every part of your family life, from where your children live to how your finances are handled. But one area that is often overlooked after a divorce is your estate plan.

Many people assume that a divorce automatically updates their will, beneficiary designations, guardianship wishes, and other estate-planning documents. In reality, a divorce decree and an estate plan serve different purposes. While your divorce documents address important legal matters related to the end of your marriage, they may not address what happens to your children, assets, and other affairs if you die.

For divorced parents, reviewing and updating your estate plan is important. Your family structure may have changed significantly since your original documents were created, and your estate plan should reflect your current circumstances and wishes.

What Your Divorce Decree Doesn’t Address

The divorce decree may establish which spouse retains ownership of certain physical property but it doesn’t delegate what happens to that property after that parent’s death. Following a divorce, property awarded to an individual spouse becomes that spouse’s separate property rather than remaining marital or jointly owned property. Each parent must account for that property in their estate planning and make appropriate provisions for its disposition upon their death.

Guardianship is another important consideration.

If both parents of a minor child die, someone will need to care for that child. A properly prepared estate plan can document your wishes regarding who should serve as guardian and provide important guidance for the court.

Although a surviving parent will generally have priority when legally appropriate, divorced parents should still consider what they want to happen if both parents are no longer available to care for their children.

Don’t Forget About Beneficiary Designations

Life insurance policies, retirement accounts, investment accounts, and certain other financial assets usually pass according to their beneficiary designations rather than according to the instructions in your will.

That means updating your will may not be enough.

If your former spouse remains listed as a beneficiary on an account, that designation could create an outcome you didn’t intend. Depending on the type of account, the applicable state law, the terms of the account, and the circumstances of the divorce, the effect of divorce on a former spouse's beneficiary designation can vary.

This is why it’s important to review beneficiary designations individually rather than assuming your divorce automatically changed them.

A comprehensive estate-plan review should include checking:

• Life insurance policies
• Retirement accounts
• Investment and brokerage accounts
• Bank accounts with beneficiary designations
• Transfer-on-death or payable-on-death accounts
• Other assets that pass outside of a will
• Residential property/marital home

Protecting Assets Intended for Your Children

Leaving assets directly to a minor child can create practical and legal complications. A child can’t manage a substantial inheritance independently, as a result the assets may need to be managed by another person until the child reaches the appropriate age.

A properly structured trust can provide greater control over how and when assets are distributed.

What About a New Marriage or Blended Family?

Life after divorce doesn’t necessarily remain the same.

You might remarry, have additional children, acquire new property, or experience other financial and family changes. Each of these developments can affect your estate plan.

A plan created before your divorce may no longer reflect your wishes. Similarly, a plan created shortly after a divorce may need to be revised when you enter a new marriage or create a blended family.

Consider Who Can Make Decisions for Your Children

Estate planning isn’t limited to deciding who receives your property after you die. Parents need to think about who can step in if they become incapacitated or temporarily unable to make decisions.

Appropriate legal documents can help provide direction regarding financial and medical decision-making and can help your family understand your wishes during an emergency.

Parents should discuss these issues with an attorney to determine which documents and arrangements are appropriate for their particular circumstances.

What Should a Divorced Parent's Estate Plan Address?

There is no one-size-fits-all estate plan for divorced parents. Your plan should reflect your family structure, assets, and goals.

A comprehensive review may include:

• Your will: Make sure your beneficiaries and personal representative reflect your current wishes.
• Guardianship wishes: Clearly document your preferences regarding who should care for your minor children if both parents are unable to do so.
• Trust planning: Consider whether a trust would be appropriate for managing assets intended for your children.
• Beneficiary designations: Review life insurance, retirement accounts, and other accounts that pass outside of your will.
• Powers of attorney: Make sure appropriate individuals are authorized to handle financial matters if you become incapacitated.
• Health care documents: Review documents addressing medical decisions and your health care wishes.
• Blended-family planning: If you have remarried or have additional children, make sure your plan addresses the needs of your entire family.
• Changes in assets: Update your plan when you acquire or sell significant property or experience other major financial changes.

When Should You Update Your Estate Plan After Divorce?

It’s often wise to begin the review as soon as your divorce is finalized and then revisit your plan whenever there’s a significant change in your family or financial circumstances.

Even if you believe your divorce automatically changed your estate documents, it’s better to have an attorney review the documents and beneficiary designations than to rely on assumptions.

Make Sure Your Estate Plan Reflects Your Life Today

Divorce represents a major change in your family and financial circumstances. Your estate plan should reflect those changes.

Rather than assuming your divorce decree has taken care of everything, take the time to review your will, trusts, beneficiary designations, powers of attorney, and other estate-planning documents.

Our estate planning attorneys can help you understand how your divorce may affect your estate plan and identify areas that may need to be updated. A comprehensive review can help ensure that your estate-planning documents reflect the family, assets, and wishes you have today—not the circumstances you had before your divorce. 

Schedule a consultation with our estate planning attorneys in Ann Arbor today!