Divorce isn’t an easy process. It’ll impact nearly every aspect of your life, from your standard of living to the amount of time that you get to spend with your children. While these issues certainly need to be addressed, you can’t overlook some of the collateral issues that are tangentially tied to your marriage dissolution. This includes estate planning.
If you neglect to update your estate plan after divorce, then your assets could end up being distributed in a way that you hoped to avoid. Let’s take a closer look at some of the implications that divorce can have on your estate plan so that you have a better understanding of the importance of re-addressing your estate plan during your marriage dissolution.
How divorce can affect your estate plan
You may not realize it in the moment, but divorce can have a tremendous impact on your estate plan. This includes the following:
- Automatic revocation: Most states, including Arizona, have an automatic revocation provision in the law that revokes any estate planning term that favors a now ex-spouse. Therefore, your spouse will automatically be removed as a beneficiary from your estate without further action. While that’s certainly helpful, it can also create other problems, such as the risk of intestate succession, which is discussed below.
- Insurance beneficiary designations: Although state law may protect you from inadvertently leaving assets to your former spouse through a will or trust, it may not go so far as to address beneficiary designations on pay-on-death accounts and life insurance policies. You need to update these beneficiary designations, otherwise these assets may still end up falling into the hands of your former spouse.
- Intestate succession: Even though your former spouse won’t inherit from your estate plan, failing to modify your estate plan to name new beneficiaries could result in your assets being distributed in accordance with the state’s intestate succession law. As a result, your assets could end up being inherited by someone you didn’t want to inherit.
- Power of attorney and healthcare directive designations: If your spouse is named as your power of attorney or a person to make important healthcare decisions on your behalf in the event of incapacitation, then you’ll want to be sure to remove your now former spouse. Otherwise, matters could become quite complicated with someone who doesn’t have your best interest in mind making important decisions on your behalf.
- Division of retirement accounts: Although your ex-spouse will automatically be removed as a beneficiary from your estate, there are some key exceptions. This includes division of certain retirement assets, like your 401(k) and your pension benefits. This will be addressed through your divorce, but you’ll want to keep in mind that you’ll likely have fewer retirement benefits with which to deal during the estate planning process.
Don’t let your divorce derail your estate plan
Divorce can have a tremendous impact on your estate plan. So, as you navigate your marriage dissolution, you have to be careful to ensure that you’re not setting your estate up for a poor outcome.
The best way to avoid an unfavorable outcome is to educate yourself on the process and regularly update your estate plan so that it clearly reflects your intentions at any given point in time. That said, if you have any questions about the process, you should be sure to seek out answers. Otherwise, you leave your future and the future of your estate vulnerable to an unfavorable outcome.