Have you decided to get divorced during the COVID crisis? You are not alone. This prolonged period of quarantining is causing many people to reevaluate their lives. They have had enough of their spouses during this pandemic and decided to finally start anew.
If you have decided that now is the right time to start a new chapter in your life, you should revisit your estate plan in light of your divorce. There will be issues that can be addressed now, and others that will need to wait until the divorce is finalized.
What can I do and what can’t I do?
Once the divorce is started, you cannot re-title assets or change beneficiary designations of life insurance and retirement accounts. Most states prevent you from transferring ownership of assets or changing beneficiary designations until the divorce is over and the assets have been divided.
However, you will be able to update your will and trust. This means you can name a new executor and trustee, as well as a guardian for your children.
You should discuss with your attorney whether you should disinherit your spouse. Keep in mind that until the divorce is final your spouse may have a claim against your estate if you die during the divorce. If you try to disinherit your spouse completely, your spouse may sue your estate for the assets he or she is entitled to under state law.
Is a recent inheritance at risk?
If you recently inherited monies from a deceased parent or relative, your spouse may have a claim against those funds. The assets may be considered marital assets subject to divorce. If you do not have a prenuptial agreement in place, your spouse may be entitled to a share of them.
Can my spouse get money left to our children in trust?
Some people create irrevocable gifting trusts to gift money to their children and save on estate taxes. If you and your spouse did this and are now in the midst of a divorce, you will most likely not be able to get the monies back. Courts are unlikely to unwind what you did so you can take back monies that were set aside for your children. The court will look at the best interest of the children. Once you gift it, it is gone. Just because you are now divorcing does not mean you get it back.
How will my estate taxes be affected?
Unfortunately, once you get divorced you will have lost your spouse’s estate tax exemption amount. On the federal level that is currently more than $11 million. Once divorced that could result in your estate paying millions more in estate taxes on your death. However, saving on estate taxes is no reason to stay married. Plus, your assets will may be divided during the divorce if you did not have a prenuptial agreement in place resulting in less money to tax. Speak to your estate planning attorney to explore other ways to reduce estate taxes once the divorce is finalized.
What documents should be changed right now?
You probably do not want your spouse making health care decisions for you once you file for divorce. The same applies for your power of attorney. You do not want your spouse to have access to any assets in your name alone. Check with your divorce attorney and your estate planner about updating these documents. Under your state’s law, you may have to give your spouse notice that you have revoked those documents.
After you tackle the immediate “must do” items early in the divorce process, do not forget to revisit your estate plan once the divorce is finalized.