14 April 2024

After Divorce, Separate Your Estate Plans Too

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If 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.

Divorcing couples who previously used an estate planner together should individually seek out new advisers to avoid any conflicts of interest. Other pointers:

Name new proxies. There are a number of other documents that can easily be revoked before a divorce, lawyers say, including financial powers of attorney, health-care proxies and even something in New York state called an appointment of agent, which designates a person to take care of disposing of your remains after your death.

Changing these documents requires tearing up the old ones and filling out new ones naming other people in those roles. The new documents should start out saying they revoke and replace the older documents.

Next up: beneficiaries. Beneficiary designations should be reviewed and changed. Many people have multiple bank and brokerage accounts, insurance policies, retirement accounts and annuities that name beneficiaries or individuals to whom ownership will transfer at death. It isn’t uncommon for some of these accounts and policies to be overlooked or long-forgotten.

The proceeds of these accounts and policies pass directly to the named individuals regardless of what a will says. The money could be long gone by the time family members find out about it.

Beneficiaries have to be changed in writing by filling out a new form and sending it to the financial institution handling the account or policy.

Lawyers advise people to make a careful inventory of their records so they don’t accidentally miss an account.

When ties do bind. In some divorces, the financial agreements call for an ex-spouse to remain a beneficiary of a retirement account or insurance policy—and that beneficiary may want to take steps to clarify the arrangements.

The decision can be reinforced by filling out new beneficiary paperwork after the divorce to make the intention clear, lawyers say. Get a written confirmation from an insurance company that they have received your beneficiary changes, lawyers advise.

Individual-retirement-account money can be divided and rolled over into separate accounts by sending a letter to the plan administrator with proof of the divorce, Ms. Schmidt says. Qualified retirement plans, however, such as company-sponsored ones, take a little more planning.

The ex-spouse should get a court order called a Qualified Domestic Relations Order that gives him or her the right to a portion of the other’s 401(k) or other qualified-plan assets, as set out in their divorce settlement.

Click here to access the full article on The Wall Street Journal. 

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