Now that you are recently divorced, what should you do with your estate plan?
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On the wedding day nobody expects to get divorced ever. We often think we will ride off into the sunset and live happily ever after. However, the sun rises the next day and problems occur. A day of problems turns into weeks of problems and then into years of problems.
Your friends tell you there is a light at the end of the tunnel, and they are right; however, it is the headlight from an oncoming freight train called divorce.
During your marriage you bought assets together with your spouse and had kids. Your immediate focus is where am I going to live, how can I afford life, are my friends still my friends, and will my kids still love me. Nobody is instantly thinking about their estate plan and the ramifications of their previous planning if they never change it. Imagine going through a painful divorce and having a medical emergency later that you die from. Who would be legally entitled to all your assets? Will it be your divorced spouse that you never took off your beneficiary designations?
Here is what you need to know. Under California law, Family Code section 2024, a dissolution or annulment of your marriage may automatically cancel your spouse’s rights under your trust, will, and assets owned in joint tenancy. However, it does not cancel your ex-spouse’s beneficiary designation on your life insurance policy.
Think of it this way, if the California legislature puts a warning into the law, you should heed their advice.
You should immediately review who are the beneficiaries of your life insurance policies, 401(k) plan, IRAs, 403(b) plan, other retirement plans, work place benefits, pension information, etc. You need to make sure that any court ordered agreements are kept in place. For instance, a spouse might be required to have a life insurance policy in place for a certain amount while the children are still under the age of 18.
Also, even if your spouse is removed as a beneficiary, who did you put in their place? If you don’t update your beneficiary designation, there could be no beneficiary that is listed. This, most likely, would cause a costly and needless probate.
Another consideration is if you had a joint living trust (or no trust), you will now need to create a new single trust. Imagine not having a plan in place and your kids have to be represented in probate court and they could wind up getting all of your assets at age 18. A rich 18 year old is a poor 19 year old.
Although it is true that you can’t transfer assets during an active divorce, you will want to create an estate plan so it is ready to be implemented right when the divorce is officially over.
You will need to get the change of ownership forms from your bank and brokerage firms.
Typically, the custodian of your money will need a “Trust Certification” that shows them who is in charge of the trust (trustee), what powers the trustee has, and what is the official name of the trust.
Divorce issues can be quite complex, at Bezaire, Ledwitz and Associates we are here to help you with the estate planning problems that result from this difficult situation.