How Does Divorce Affect Estate Planning?
By: M. Scott Gordon
Getting divorced in Chicago usually results in many changes to a person’s life, from shifts in finances to variations in parenting if you have minor children. We often think about the ways in which divorce affects a person’s social and family experiences, as well as the ways in which divorce can have a major impact on a person’s economic situation. Yet there are other areas of a person’s life that should not be overlooked when a divorce is imminent, or just after a divorce is finalized. One of those areas is estate planning. While many people think of estate planning as something for older adults, estate planning in fact is something that adults of all ages should think about carefully, especially if they have children who rely on them for financial and emotional support.
How does divorce affect estate planning, and what considerations should a person take with regard to estate planning when she or he gets divorced?
Changing Your Beneficiaries on Your Life Insurance Policy and Your Retirement Accounts
When you are getting divorced, all marital property will be subject to division. As such, your retirement accounts (such as 401k accounts or 403b accounts) may be subject to division. Nearly any account that you contributed to during the marriage—unless it was excluded through a prenuptial agreement—likely will be classified as marital property and will be divided according to a theory of equitable distribution. In some cases, life insurance policies that you took out during the marriage may have cash value. For example, whole life policies and universal life policies tend to accrue cash value as time passes since a portion of your premium goes into an account that grows with interest. This cash value can also be subject to division in a divorce.
Once the court classifies and distributes any value in insurance policies or retirement accounts, one or both parties may still have ownership over these accounts. In these cases, it is important to reassess the beneficiaries listed on these accounts. Life insurance policies always have a beneficiary, and holders of retirement accounts also can list beneficiaries. For married couples, the beneficiary almost always is the other spouse. However, a divorce can change that. If you do not have minor children from the marriage and have your spouse listed as a beneficiary, it is important to consider changing the beneficiary to another party. If you do have minor children, you ultimately may keep your ex-spouse as the beneficiary on a life insurance policy to provide for your minor children. Regardless, it is important to consider these questions.
Other Elements of Your Estate Plan
When you make changes to beneficiaries on these policies and accounts, it is also important to consider beneficiaries listed in your will, and to any other accounts that have beneficiaries listed.
Other documents that you should consider changing as a result of a divorce are any that give your ex-spouse certain abilities to make decisions on your behalf (assuming, of course, that you no longer want your ex-spouse to be able to make decisions for you). For instance, you may have a power of attorney in place that names your ex as your power of attorney to handle any financial matters in the event that you become incapacitated. Or, for example, you may have a healthcare power of attorney that allows your ex to make healthcare decisions for you in the event that you become incapacitated and cannot make those decisions for yourself. All of these documents should be reassessed in light of your divorce.
Speak with a Chicago Divorce Lawyer
Do you have questions about divorce and estate planning matters? An experienced Chicago divorce attorney can speak with you today and can answer your questions. Contact M. Scott Gordon & Associates for more information.