The Danger of Divorce and Estate Planning

Married individuals, like single ones, should have wills, powers of attorney and living wills. These documents provide for the real-life realities of disability and death and often minimize taxes and the likelihood of costly family court battles. My married clients typically appoint their spouse as financial power of attorney, health care representative and executor of their estates.

But what happens when folks get divorced? Well, in my experience, divorce is one of those life-changing events that should cause people to revoke the old estate planning documents in favor of new documents with new appointments. The reason is fairly straightforward: how many divorced people still want their now ex-spouse to inherit their estates or to make financial decisions about their money or medical care? The answer, of course, is . . . . . not many!

Most of my recently-divorced clients update their wills, powers of attorney and advance medical directives to remove their ex-spouse from those documents and add siblings, children and other close family members as beneficiaries/executors/health care representatives. I also remind those clients to change the beneficiary designations on non-probate assets such as life insurance policies and retirement accounts which probably name the ex-spouse as beneficiary of those assets. Again, I have not met many clients that still wish to leave life insurance policies or 401K accounts to their ex-wife or ex-husband.

Although the ex-spouse traditionally is not featured prominently in updated estate planning documents following a divorce, there are exceptions to this general rule. For example, a property settlement agreement approved by the divorce court often requires spouses to maintain life insurance to fund alimony obligations to the ex-spouse or to ensure that the educational needs of the couple’s minor children will be met. In those situations, it may be necessary to name the ex-spouse as a beneficiary or trustee of those accounts or trusts, as the case may be. Likewise, for those who have minor children, wills should typically name guardians for those young children, and courts will generally give priority right to parents to become guardians for their children absent evidence that the surviving parent is unfit to be guardian.

The New Jersey probate laws were amended about nine years ago to state that a divorce decree serves to revoke designations for an ex-spouse under a will, trust, power of attorney, and beneficiary designation of accounts such as life insurance policies. This law can help those folks who fail to update their estate planning documents following divorce by using the divorce decree to prevent the ex-spouse from inheriting assets or serving as executor.