No one goes into a marriage planning for a divorce. You and your former spouse may have already created an estate plan. If so, it is important to understand how divorce and remarriage affect your plan.
Your Current Estate Plan
It is critical to understand how your current estate plan will function if you divorce. Most states have laws in place that assume that if you divorce, you do not want your ex-spouse to inherit any of your money or property. As a result, even if you have a will, trust, or life insurance policy that names your ex-spouse as a beneficiary, your assets may be protected. When your ex-spouse dies, the law may also prevent your ex-spouse’s beneficiaries from receiving a distribution from your now deceased ex-spouse’s estate.
Because this protection may not be available in all states, consulting with your estate attorney is essential. In addition, you will need to review your existing estate plan as well as beneficiary designations for your life insurance and retirement accounts. Unless your divorce settlement requires it, you will want to ensure that your ex-spouse is no longer named as your beneficiary.
Also, review your divorce decree to check whether it contains a court order to keep your ex-spouse or minor children as beneficiaries on your life insurance policy. While you are checking your insurance policies and retirement accounts, check whether your beneficiaries are up-to-date. You may want to add your current spouse or choose another family member when you update these documents. Conversely, if you want your ex-spouse to benefit from your estate, you will need to verify that your state does not have a statute in place that would prevent your objectives from being met.
Your Ex-Spouse’s Estate Plan
Just as you made updates to your estate plan, review your ex-spouse’s estate plan if you are under the assumption that you are entitled to money or property. These assumptions may not be true. Often remarriage will impact your ability to qualify for certain government and pension benefits, such as benefits from the Veteran’s Administration, Social Security, or even survivor’s pension benefits from a deceased ex-spouse’s employer. If you are no longer eligible to inherit these benefits, you may need to adjust your own estate plans.
Your Current Spouse’s Estate Plan
You and your spouse, after remarriage, may have chosen to keep your finances separate. If this is the case, it is essential to understand how the laws in your state will impact your plans to keep your property separate. You may want to ensure your property goes directly to your children, grandchildren, or other cause, such as charities. However, state law may require that the surviving spouse is not completely disinherited.
Unless you have a pre- or post-nuptial agreement in place that defines how you and your ex-spouse agree to distribute your property if one of you dies, these laws (intestacy, community property rights, or elective share statutes) may override your plans. If, on the other hand, you want your surviving spouse to inherit from you, be very specific in your instructions. Clearly communicating your intent can help preserve your current spouse’s relationship with your children and may help dispel rumors about your intent.
Your Beneficiaries Remarry
In addition to your remarriage, it is important to review your estate documents if one of your beneficiaries remarries, especially if the new marriage is rocky or the new spouse is financially unstable or at risk for lawsuits. You will need to craft your estate plan to protect the interests of your beneficiary. You can stipulate that the assets must be held in an ongoing asset protection trust to benefit your beneficiaries. Doing so can protect your beneficiary’s inheritance from being taken by their spouse’s creditors to fulfill a financial obligation or even from being divided as marital property if your beneficiary should get divorced.
Your Children’s Guardians Remarry
You should also review your estate plan if the guardians you chose for your children remarry. Assume you chose a couple to be your children’s guardians because they shared your values. They divorce, then remarry. Both marry nice people with whom you would feel comfortable entrusting your children. Which couple would be your children’s guardians if you died? If your estate plans have not been updated, the court may find it difficult to make this decision.
Suppose your children were the recipients of a large life insurance policy or another inheritance. In that case, the two couples might assume the other had ulterior motives for wanting to be your children’s guardians.
A recent Texas court case highlights the issues that can arise from not updating your estate plans. In this case, a mother established a trust that would make distributions to her son and her son’s spouse. The son remarried after the mother executed her trust. When the mother died, the son argued that his mother intended for “his spouse” to mean whomever he was currently married to. Unfortunately, the court applied a different interpretation of the definition of spouse and said that the intent was for the inheritance to go to the son’s first wife. The result was an expensive and contentious court battle involving the son, the spouses, and the grandchildren. If only the mother’s intentions had been clearer. She could have saved her family a lot of grief and expense.
Like other significant life events, remarriage should serve as a reminder to revisit your estate plans and verify that everything, including the beneficiaries, is as you intended. Don’t hesitate to contact us if you need help working through these scenarios and ensuring your estate plan documents properly reflect your intent.