Any divorce, regardless of the amount of assets of the couple, involves changes to the legal status between two individuals that will have a natural effect on your estate plan. Meeting with your estate planning attorney and having that attorney coordinate with your matrimonial attorney can prepare you for the most positive outcome. With input of both attorneys, you will be able to understand what changes you can make and at what point in the process you can and should make the changes. This last piece can be a tactical decision and will not be the same in all situations.
Domestic Relations Law and Divorce in New York State
Starting with what changes you cannot make… New York State Domestic Relations Law states that once a divorce proceeding is commenced, neither spouse can change beneficiaries on life insurance or retirement accounts until after the divorce is finalized. They are also legally barred from liquidating or removing assets from retirement accounts, selling or disposing of joint assets or taking a line of credit against the family residence. Violating any of these provisions can result in a contempt order – which the Courts take very seriously.
Amending Your Current Estate Plan and Will
Most couples with existing estate planning named each other as health care agent, power of attorney, executor, and primary beneficiary of a last will and testament or living trust. These are the designations that you likely want to change while the proceeding is pending. Do you want your divorcing spouse to make life and death decisions about your healthcare? For many this answer is a resounding NO! The same answer stands for financial decisions involving a power of attorney and control of your estate after your death.
One compelling reason to amend your living trust or last will and testament while the divorce is pending is to change the beneficiary. If your spouse is named as the sole beneficiary, he or she will receive your entire estate if you die before the divorce is final and you haven’t changed your plan. It is not a full-proof plan, the spouse will always have the right to seek a “right of election” which is the equivalent of one-third of your estate before the divorce is finalized. However, moving two-thirds completely out of the reach of the spouse is significant. Similarly, you will want to remove your estranged spouse as executor or trustee. Even in the most amicable of divorces, the divorcing spouse may no longer be an appropriate person to serve in these positions.
Once the proceeding is finalized, New York State Law states that your now-ex-spouse is deemed to have predeceased you for the purpose of your last will and testament. The effect of this is that your second named executors and trustees will serve and your contingent beneficiaries will receive your assets. Who did you name as successor? Perhaps your child is the contingent beneficiary but you named your ex’s sister as trustee of a trust for your child’s benefit. If so, do you still want her to manage your child’s trust?
Consult With Your Estate Attorney and Divorce Attorney
Even if you have been proactive and amended your documents while going through a divorce, you should review your plan again after the divorce decree is issued. The finalization will likely lead to a drastic change to your assets, for better or for worse. This change as well as the ability to change retirement and life insurance beneficiaries will require another look at your plan. In addition, estate planning for a single person utilizes different tools and tricks than for a married couple. For those with taxable estates, you no longer have the benefit of both spouse’s exemptions.
All decisions regarding your estate planning pending divorce should be made in consultation with both your matrimonial and estate planning attorneys. Involving a financial advisor and accountant can round out the team to make sure all bases are covered and your wishes are followed.