Planning Your Estate Post Divorce
There are lots of reasons people get married. It might not surprise your that love isn’t always the major reason. All too often, people get married because it makes financial sense. Or put another way, people sometimes get married because of money.
They get married for tax purposes and even to consolidate their living expenses and bills. But no matter what your reasoning behind getting married, it’s important to keep in mind that over fifty percent of all marriages in the U.S. end up in divorce.
Making matters more messy, if you’re in the process of planning your estate while you’re getting divorced, things can get pretty complicated pretty quick.
Says a representative of Gemma Law, an estate planning attorney, when estate planning is being conducted simultaneously with a legal separation and/or a divorce, it’s imperative that the person who is engaging in the estate planning “fulfill their other obligations concerning asset disclosure in connection with the divorce or separation.”
In other words, just because you’re splitting up doesn’t mean you can cut your ex out of your will without doing your legal due diligence.
But what happens if you’re planning your estate post-divorce? According to a new law report, divorce can be a terribly painful experience.
Once you’ve decided to split, there comes a wave of seemingly endless legal paperwork and proceedings, such as retitling assets, refinancing or selling the family home, purchasing a new home or renting an apartment, custody issues for children, and even how to divvy up college expenses for older kids.
In order to move on with your life, you need to tackle these tasks one by one.
That said, estate planning is often overlooked. It’s a no brainer to assume the last person you want inheriting your estate when you pass is your ex-spouse. But this is what will happen if your estate and will are not updated after a divorce.
Some states have laws that prohibit an ex-spouse from inheriting your estate. But you should not rely on these laws as they can be contested in a court of law.
The only sure way to know your assets are protected is to update them with a reputable estate planning attorney. Don’t wait. Do it before the ink on your divorce documents has dried.
Say the experts, assets that allow you to name a beneficiary, such as employer retirement plans, life insurance policies, IRAs, annuities, and more, do not fall under the jurisdiction of a will and/or trust. They are to be paid to the person you have documented as the beneficiary, unless he or she is deceased or incapacitated.
More than likely, you named your spouse as your beneficiary just after you were married. This needs to be changed upon signing your divorce agreement. Now you need to find a new beneficiary. But that’s not always an easy process.
If Children are Involved
If you have kids named as beneficiaries and they are still minors when you die, the court will provide a guardianship for them until they turn eighteen. At that time, they can receive the inheritance.
Problem is, rarely are young people educated on how to spend money, and they end up blowing their inheritance on expensive objects and “fun times” rather than making proper investments or even paying for their education. In this case, you ex-spouse can be named by the court to manage the funds while the kids are still minors.
Naming a separate person like a parent or sibling as the beneficiary with the belief that they will use the inheritance to take care of the minor children also comes with its risks.
You will be dead which means you have no way of knowing whether or not they will follow your instructions. They may, in fact, choose to spend the money on themselves.
Retirement Accounts and Plans
It’s important to name the right beneficiary due to tax concerns “and for the potential for long-term tax-deferred growth.” After your death, your retirement account must be distributed to the beneficiary within five to ten years.
If the beneficiary somehow qualifies for “special treatment” by law, the account can be distributed over the course of a beneficiary’s lifetime. This requires complicated tax planning.
Your Trust and Living Will
Fact: if you don’t update your living will and your trust upon your official divorce, your ex will inherit all your assets. If they have remarried, your property and money could very well end up in their pockets and the pockets of their children, entirely disinheriting your own family.
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