Estate Planning Before, During, and After Divorce

If your marriage is headed toward divorce, or if you’re in the thick of a divorce right now, estate planning probably isn’t on your mind. If you’ve recently come through a divorce, you may not want to think about estate planning, either; you probably don’t want to see another lawyer for a good, long time. If you’re dealing with divorce, some reluctance to dive into estate planning is understandable. Unfortunately, it may be more important to create or update an estate plan now than ever. Here’s what you need to know about estate planning before, during, and after divorce.

Estate Planning Before Divorce in Ohio

When we speak of estate planning before divorce, we mean before the divorce case is even filed, rather than before it is final. If your spouse files for divorce and blindsides you, you may not have the opportunity to do pre-divorce process estate planning. But if you are planning to file, or suspect your spouse is moving in that direction, there are some estate-planning actions you may want to take.

Why not get the divorce filing out of the way first? Because in Ohio, when a person files for divorce, the court enters a mutual restraining order. This order is intended to protect both spouses from either one giving away, selling, wasting, or otherwise dissipating marital property that could be divided in the divorce, and assets of either spouse. The order also prohibits changing beneficiaries and terminating life insurance policies on the life of either spouse.

Imagine this scenario: You have a 401(k) at your job worth $100,000, an Individual Retirement Account (IRA) worth $250,000, a life insurance policy on your life worth $500,000, and a house worth $400,000. You hold the house as joint tenants with right of survivorship with your spouse, and your spouse is named as beneficiary on the retirement assets and the life insurance policy.

Once you file for divorce, you cannot change your beneficiary designations. If, a month after you file for divorce, you suffer a fatal heart attack, your spouse would receive the assets in your retirement accounts, the death benefit on your life insurance policy, and as the surviving joint tenant, would become sole owner of your house.

If you would prefer to avoid this outcome, and leave the assets you have worked for to another beneficiary, such as a sibling or an adult child from a previous marriage, you need to change beneficiary designations before filing for divorce.

Be aware that for a 401(k), you will need to get a written waiver from your spouse in order to change the beneficiary, which may tip your hand regarding the divorce. Likewise, dissolving the joint tenancy with rights of survivorship, and becoming tenants-in-common, means that should you die while the divorce is pending, your heirs would inherit your interest in the house—but your spouse would surely know there was something going on when you asked to dissolve the joint tenancy.

Estate Planning During Divorce

During the divorce process, you may be so focused on the matter at hand—your divorce—that estate planning does not even cross your radar screen. However, there are some estate planning issues you really should consider during this time.

For instance, if you and your estranged spouse had an estate plan, it is likely that your estate planning attorney prepared powers of attorney for both of you, and those documents probably named your spouse as your agent (the person authorized to make decisions under the power of attorney). Under Ohio law (ORC 1337.30(B)(3)) an agent’s authority under a power of attorney attorney is revoked when an action for divorce is filed. That means you don’t have to worry about your estranged spouse improperly wielding their power as agent should you become incapacitated during your divorce.

Unfortunately, the statute cannot automatically put another trusted person in the role of agent. Only you, through estate planning, can do that. While it is unlikely that you will become incapacitated during your divorce and need someone to make financial or medical decisions on your behalf, it is possible. For that reason alone, you should speak to an estate planning attorney during your divorce.

There’s another reason, too. It is possible that your settlement agreement might have adverse income, estate, or gift tax consequences. Your estate planning attorney can help shed light on the tax consequences of your proposed settlement before it becomes a court order.

Estate Planning After Divorce

After divorce, it is essential to take stock of your financial situation and look toward the future. If you did not update your financial and medical powers of attorney during your divorce, do it now. Your will will likely need an update, as well. Not only will you want to update your beneficiaries, but if you have minor children, you may want to name a new guardian for them.

After divorce, the legal landscape of your life has changed, and your estate plan needs to change with it. Your estate planning attorney can help you review your beneficiary designations on life insurance and retirement accounts and design an estate plan that will be responsive to your new circumstances and your family’s needs.