Estate Planning in the Face of Divorce

No doubt the commencement of a divorce is unsettling, chaotic, and emotionally draining. But that said, divorces happen in stages. Separation precedes the divorce, and there is often even a period before separation where the inevitable becomes apparent and you’ve made a decision to split up. While you research good family law attorneys, you should likewise be contacting your estate planning attorney. Separation and divorce can upend an otherwise airtight estate plan, and timing is of the essence.

With a divorce comes titling issues. Assets that once were jointly owned are now owned individually. Beneficiaries and agents under your estate planning documents may remain listed as your soon-to-be ex-spouse. Even though the divorce may invalidate certain documents, failure to update them might leave you intestate in the case of your estate after death, or without an agent under your power of attorney in the case of incapacity. Additionally, if you were to die while separated – North Carolina requires a one year separation period prior to divorce – your soon-to-be ex is still legally your spouse, and can still legally make a claim for at least a portion of your estate.

I have seen recently several cases where families of decedents have come to see me in the face of a situation where the deceased parent was not living with his thought-to-be ex-spouse, but that the divorce never was actually finalized. A wrongful death claim lost nearly half of a judgment award to an ex-spouse because they had agreed it was too expensive to get divorced and thus merely agreed to go their separate ways. Another couple lived separate lives but remained married for the sake of keeping health insurance. In neither scenario did the agreement hold any water whatsoever, and as soon as the estate was opened, the ex-spouse came to collect. These cases absolutely tormented the children, and could have been cured with some very simple estate planning strategies.

If you own property in another state, you should seriously consider a trust or an LLC to hold the property. If you have assets you believe should be protected and segregated from the proceedings, there are some limited options and strategies that can be employed. Failing to update your estate plan will undoubtedly cause tension and issues amongst your family. It is wise and prudent to express your testamentary intent immediately after the decision to divorce is made. If you were divorced, have custody of minor children, and wish to make sure their future funding is handled by someone other than your ex-spouse, you should look to a trust. A trust is especially appealing in these situations because it can provide for long term care of the children but without having to funnel those funds without restrictions through an ex-spouse, even if that ex-spouse is their legal guardian.

While it is especially difficult to address these issues at the same time as one of the most emotionally trying periods in your life, you may actually be surprised at how steeled you become in the face of that turmoil by accomplishing your estate planning goals. Many people wait until they “feel better” about themselves and their place in life before tackling their estate planning. However, handling these matters proactively can be psychologically rewarding by knowing you are prepared for what’s to come. It is imperative to address what happens if you pass away while separated or before the divorce is finalized, or what happens with the children should you become incapacitated. Further, what happens to certain assets if you fail to make changes to the title or beneficiary designations in time?