No matter what type of divorce process you go through, Divorce is never easy! While a Collaborative Divorce will aid in maintaining family ties and co-parenting skills, the fact that you got Divorced means you’re just went through a major life change. Any Estate Planner worth their salt will tell you that any major life event, such as Divorce, will trigger substantial changes to your Estate Plan.
Let’s look at the 6 Things you MUST do once your Divorce is Final:
1. Update your power of attorney (POA)
If you have an old power of attorney that names your ex-spouse as your attorney-in-fact, you should revoke this immediately. You also should execute a new power of attorney naming someone you trust, like a friend, relative or trusted advisor to make decisions on your behalf with regards to your finances and assets in case of your incapacity. Make sure you get educated about the difference in General POA and Durable POA (there is a big difference there), so you understand what you are or are not signing.
2. Update your Medical Power of Attorney
A Medical Power of Attorney (Medical Directive or Health Care Proxy) is a document that allows someone to make medical decisions for you when you are unable to do so. (Maybe you were in a car accident, or are under narcosis, and are unable to express your wishes as to your medical treatment). It is important that you have someone you trust to make these decisions, if your ex-spouse is named as your Medical Proxy on an old document that was not revoked, you risk having them make decisions for you, which might not be what you wanted.
3. Create a Trust for Minor Children
Minor Children are not able to inherit under Texas Law; this is because a minor can not own any property before they reach the age of majority. As a result of this, most ex-spouses will end up being the guardian for your minor children, giving them access and control over your children’s assets (anything you left for them after you passed away). If this is not something you would endorse, creating a Trust would be a good way to ensure that your ex-spouse will not control their money and assets until they turn 18. With a trust you can choose who will act as trustee, and who will have access and control of your children’s assets after you die. Another way to protect your minor children is to create a Kids Safety Plan™, which will offer your minor children an extra layer of protection usually not offered by the average estate plan.
4. Change the Beneficiary Designation on your Life Insurance!
While it can be true that during some divorces the Life Insurance Beneficiary designation becomes part of the divorce decree, most divorces do not address them. When you have a life insurance policy, it would behoove you to review who will receive the proceeds upon your death. Why? It is not uncommon that people forgot to change the Beneficiary designation. This means that if your ex-spouse was listed as the beneficiary, they will still receive the payout of any life insurance funds, regardless if you remarry or not. It is not uncommon for future and ex-spouses to argue in court over life insurance proceeds that have been paid out erroneously to a former spouse (because no one notified the Life Insurance about the divorce. See Texas Family Code §9.301). Best is not to take a risk and update your Beneficiary Designation (if you have minor children, you should appoint the trust to be the beneficiary, for if you don’t a judge (not you) will decide who manages the proceeds until they reach majority).
5. Update Beneficiary Designation On Retirement Plans
Another Beneficiary Designation that is often overlooked is the one on retirement plans. While it is true that some states may automatically revoke a designation on a retirement plan if the ex-spouse is listed, federal law states that the last named beneficiary is the one who is entitled to the funds. As your financial planner will tell you, not all plans are created equally, some will be controlled by state law, others by federal law, for this reason it is advisable not to take any risks and change the beneficiary designation as soon as possible.
6. Create or Revise Your Estate Plan
There is no better time than now to create a new estate plan that deals address your new status in life. After all, going through a Divorce you most likely will have a good idea of what your assets are, what they are worth and who you would like to inherit. If you had a joint trust with your ex-spouse, creating your own individual trust is a must! If you have minor children, creating a trust and determining who will manage their assets if something happens to you should be equally important.
TIP: Make sure you hire an experienced Estate Planning Attorney, rather than one who dabbles in it as an afterthought, or uses form documents. Also, make sure you bring you Divorce Decree with you to ensure your new estate plan meets your obligations under the divorce agreement (in particular important with regards to life insurance beneficiary designations).