Going through a divorce is a life altering event. Many individuals say divorce can oftentimes feel like death as life drastically changes. You grieve for the person who was, the person you thought you knew, and the life you thought you'd live. Though death may not have occurred after a divorce, it’s important to revisit your estate plan once the divorce is finalized.
Women specifically may face unique challenges related to their estate planning. Estate planning involves planning and preparation for not only death but also incapacitation. Inevitably everyone’s time on earth will end so it is important to have a plan in place when your clock runs out. It is also important to prepare for a situation when you may become incapacitated and cannot make a sound decision for yourself.
Your Current Estate Plan and Former Spouse: If you already have an estate plan that names your former spouse as a Beneficiary, Executor, Trustee or Agent, your spouse will automatically be removed from receiving any property or serving in any official capacity under Texas law after divorce.
Step One: Inventory Your Estate
After your divorce is finalized, your financial situation will likely look a lot different than when you were married due to the division of property. Assets and liabilities from marriage were divided and split. Divorce gives you a fresh start and a new estate to manage.
The first thing you want to do is inventory the assets and liabilities in your name. It’s likely that during your divorce, an Inventory and Appraisement was created to help divide your community estate. An Inventory and Appraisement list all assets and liabilities and who they were awarded to. This is a great start to begin indexing your new financial situation.
If you don’ have an Inventory and Appraisement from your divorce proceedings, no need to fear! It is easy to begin to put one together. You’ll want to create a list of all the assets you own and liabilities you owe. Below is a checklist to help get started:
- Checking Accounts
- Savings Accounts
- High-Yield Savings Accounts
- Cash Management Accounts
- Money Market Accounts
- Certificates of Deposit (CD)
- Credit Union Accounts
- Brokerage Accounts
- Investment Accounts
- Stocks and Bonds
- Mutual Funds
- Digital Currency (PayPal, Venmo, Cash App, Zelle)
- Cryptocurrency
- 401K and 403(b) Accounts
- Individual Retirement Accounts (Traditional IRA, Rollover IRA, Roth IRA, SEP IRA, SIMPLE IRA)
- Pension Plans
- Credit Cards
- Mortgage
- Loans (Personal loans, car loans, student loans)
- Life Insurance (personal policies or work sponsored policies)
Though it may seem overwhelming to do, reviewing your assets is the first and one of the most important steps in establishing your new estate plan. This will help you identify assets that could pass outside of Will, like accounts with beneficiary designations and accounts that are payable-one death or transferable-on-death.
Step Two: Update Beneficiaries
Once you have inventoried your estate, you want to review all accounts given your new life circumstance. Estate planning is more than just executing a Will or Power of Attorney.
Changing the beneficiaries of your accounts is a crucial step. A beneficiary designation allows you to name an individual to inherit certain assets when you pass away. This can be an easy way to ensure that your assets pass to your intended recipient and protect your peace of mind.
You’ll want to review and update the beneficiaries on life insurance policies, retirement accounts, and other assets with transfer-on-death or payable-on-death designations. It’s important to ensure that you follow the directions of the financial institution to ensure your beneficiary designations are property filled out. With some financial institutions, it could be a few clicks on the computer while others may require more robust paperwork.
Step Three: Revise or Create Your Will
It’s important to have an updated Will, no matter your life circumstances. Divorce dramatically changes your family structure so it’s important to have a new and accurate plan in place.
If you have a Will that leaves property to a former spouse or names a former spouse as an Executor or Trustee, those provisions are automatically revoked under Texas law following a divorce. However, it’s always a good idea to ensure you have an updated will so there is no confusion following your passing.
There are a few things to consider in your new or revised Will post-divorce:
- New Beneficiaries: One of the most important considerations is naming a new beneficiary of your estate upon your passing. If you’re leaving everything to your children, would you also want to leave something for your grandchildren? If you don’t have any children, do you want to leave your estate to a charity you volunteer with?
- Children and Guardianship: If you have minor children, your divorce decree provides provisions for conservatorship, possession and access, and child support. It’s important to know that a named guardian in a Will does not override a living parent. However, if something happened to both you and your former spouse, it's imperative to specify a guardian for your children.
- Creation of Trusts: Trusts can be an essential tool in estate planning if you have minor children or beneficiaries who are incapacitated or have special needs. If you currently do not have a trust and fall into one of these two categories, it is worth considering. A trust can be established for your children to provide them with financial support for their health, education and welfare. A trust can also be established for incapacitated beneficiaries so that any government assistance they may receive is not interrupted by a substantial inheritance.
- Appointment of Executor and Trustee: With a new estate plan post-divorce likely comes the appointment of new Executors and/or Trustees. An Executor is the individual who carries out the wishes of your Will while a Trustee manages the trust funds created in your Will. Think about appointing an adult child, sibling, family member or friend to carry out your wishes after passing.
Step Four: Update Your Plan for Incapacitation
After divorce, you want to ensure that you have planned for incapacity. Incapacity occurs when an individual is no longer able to make competent decisions for themselves. There could be many situations where incapacity arises – physical incapacity, mental incapacity, or cognitive decline.
To ensure actions can be made on your behalf in the event of incapacitation, you want to have several documents in place. This ensures that your wishes are carried out and that your affairs are handled when you can’t manage them.
Below are the documents you want to ensure you have:
- Statutory Durable Power of Attorney: This document appoints an individual to make financial decisions on your behalf when you’re not able to.
- Medical Power of Attorney: This document appoints someone to make medical decisions for you when you are unable to.
- HIPAA Release: This document gives an individual access to your medical records when you cannot consent to do so. It is imperative that the agent named in your Medical Power of Attorney have access to your medical records so they can make an informed decision on your behalf.
It’s common for people to name their spouse to serve in these roles, but after divorcing you may want to consider a child, parent, sibling or friend. If you currently have these documents and your spouse is named as your Agent, know divorce precludes your spouse from serving in this capacity.
Considerations for Second Marriages
Many women choose to remarry after divorce. When this occurs, additional estate planning considerations arise. For example, a woman may bring substantial property into a new marriage. Though this should be characterized as her separate property, estate planning documents can help clearly define these assets and avoid confusion at death.
Blended families bring unique challenges to estate planning. It’s not uncommon for a woman to want to ensure that her children inherit some or all of her estate even though she has a new spouse. At the same time, a woman may want to make provisions for her new spouse or stepchildren. Without a clear, defined plan, conflicts can certainly arise.
It’s imperative to remember that Texas is a community property state. That means that everything acquired during a marriage is presumed to be community property. At death and without a clearly defined plan, the Court must decide what property is separate property. This could lead to confusion and ambiguity after death. The easiest way to protect yourself is through a clearly defined Prenuptial or Postnuptial Agreement. This will outline the ownership of all assets and state how property should be divided during death or divorce.
Conclusion
Estate planning after divorce can seem overwhelming but it is necessary to ensure that your wishes are protected. It is essential that your estate plan accurately reflects your new life circumstances.
At Hunt Law Firm, we understand the intricacies of estate planning after divorce, and our attorneys are here to help you update your estate plan to reflect your current situation.