Among the tales of unfortunate fall-out from COVID-19 are those I hear from my family law colleagues about the number of couples deciding to divorce. Not surprisingly, three months of home confinement with your spouse will bring some clarity to how compatible two people really are. For those who are going through a divorce or divorce mediation, or those advising them, it is important not to lose sight of the importance of an up-to-date estate plan amidst the emotional and legal challenges a divorce brings.
During divorce proceedings, an automatic restraining order applies that prohibits either spouse from selling or transferring assets or changing the beneficiary on life insurance and retirement accounts except as permitted by Court order or agreement of the other party. Although asset ownership and beneficiary changes may not be made until after the divorce judgment issues, an important interim step for divorcing parties is to create updated Powers of Attorney for legal and financial decision-making, and Health Care Proxies for health care decision-making, so that a trusted individual, and not an estranged spouse, will make those types of decisions in the event of incapacity during the pendency of the divorce.
The law does provide some assistance in “modifying” an estate plan after divorce, although the result may not be what the divorced person intends. In Massachusetts by law, a divorce judgment revokes any disposition of property to the divorced person’s former spouse, including trust provisions, beneficiary designations as to life insurance and retirement plans, transfer-on-death accounts, and any other revocable disposition. If estate plan documents named the former spouse or family members of the former spouse as a fiduciary – such as a Personal Representative (formerly Executor) or Trustee – those designations are treated as if the former spouse predeceased the divorced person. Although these provisions may seem to do the trick, in reality they can wreak havoc on an estate plan and create unintended consequences. In addition, in the event a divorced person intends to benefit their former spouse with life insurance or some other asset, steps must be taken to ensure that designation will stick after the divorce occurs.
Once a divorce is final, each party should review their existing estate plan and beneficiary designations with the help of an experienced estate planning attorney, and make any changes that may be necessary. For example, for a couple with young children, a Trust may be appropriate to manage a divorced parent’s assets for the benefit of those children if that parent were to pass away during a child’s minority. Naming someone that a parent trusts to manage and apply the Trust assets appropriately for the minor children is of the utmost importance for a single parent. If a Trust is not created, the children’s guardian/conservator will have responsibility for managing any assets inherited by the children, and that person is likely to be the children’s surviving parent. For most divorced couples, the idea that a former spouse will have control over the inheritance left to the children is unsettling and inconsistent with their intentions. An estate plan that addresses divorce-related issues can ensure this does not happen, and that the divorced parent’s wishes will be carried out.
And let’s not forget that many divorced people go on to find love again. Estate planning for blended families is just as important. Re-marriage brings its own set of estate planning challenges, especially if the parties have children from prior marriages or relationships. In such a case, good estate planning is crucial to ensure that if one member of the new couple dies, his or her children from a prior marriage will be provided for appropriately, while the new spouse or partner is also provided for if they do not have sufficient means of their own. It is unfortunate when all of a parent’s assets pass to the new spouse, who then leaves them to his or her own children or family members at death, leaving the deceased’s children with nothing.
Whether divorce is a sad event or a welcome new beginning – or maybe both – estate planning is more important than ever during and after a divorce, to avoid unintended results and ensure children and other family members will benefit as you intend.