Getting a divorce is the start of a new chapter for your life. But if you don’t update your estate plan, you may be failing to protect your assets from your divorced spouse. Find out how your divorce affects the different parts of your estate plan, and what you should do as you begin planning for your new life as a single person.
There are very few reasons to rush to get a divorce. Sometimes starting a divorce before you are ready can make it harder to reach a reasonable settlement and end up costing you more in the long run. However, there are some things you can do now to plan for your divorce and anticipate your future estate planning needs.
Many people incorrectly assume that a Judgment of Divorce automatically cuts off all your spouse’s rights to receive money, assets, or property after you die. However, the question of how divorce affects your estate plan depends on the estate planning involved.
Durable powers of attorney for finances and health care patient advocate designations direct who has the authority to handle your affairs while you are alive, and in some cases, even while you have capacity to make decisions for yourself. Most spouses name each other as their primary agents under the powers of attorney and patient advocate designations. However, after a divorce, and possibly even while your divorce action is pending, you probably don’t want your ex-spouse controlling your affairs.
Nothing in Michigan law automatically revokes a financial power of attorney designation when a divorce is pending; however, once the divorce is final, your ex-spouse may no longer have the power to act as your agent, unless the document specifies otherwise. So it is important for you to have your financial power of attorney document reviewed during the pendency of your divorce action to make sure that your spouse will no longer have the power to be your agent. Further, if a bank or financial institution already has a copy of your prior financial power of attorney document, it may unwittingly allow your spouse to conduct business on your behalf, including accessing and withdrawing funds, as the institution may not know of your pending or completed divorce. You will need to revoke your spouse’s power of attorney authority, or make a new designation replacing your spouse with someone else you trust. However, you should consider revoking your spouse’s power of attorney as soon as possible while the divorce is pending to avoid letting your spouse have any authority over your finances.
On the health care side, patient advocate designations are suspended while the divorce process is pending and are automatically revoked at the time the Judgment of Divorce is entered. If you have named successor advocates, your divorce will pass the authority to make your health care decisions on to that successor. Otherwise, you will need to sign a new patient advocate form to name someone different. To avoid any confusion on the part of your health care providers, you should appoint new patient advocates while your divorce is pending, to avoid giving your spouse control over your healthcare decisions, should something happen to you while your divorce is pending.
Michigan law says that when a divorce, annulment, or separate maintenance is final, it revokes each spouse’s right to act as the other’s personal representative or receive assets left to them in the other’s will. This does not revoke your will. Instead, it simply skips over your spouse in determining inheritance. Assets awarded to him or her go instead to an alternate or residual beneficiary, if one is named. Otherwise, the state’s probate laws will determine who receives your assets based on family relationships.
This can have unintended consequences. It is a good idea to update your will soon after the Judgment of Divorce is signed to remove your ex-spouse and adjust any awards to step-children or other heirs to better fit your wishes.
The law relating to wills does not apply to living trusts or revocable trusts. If your spouse is a trustee or beneficiary of your trust, you will need to amend your trust documents to remove your spouse and adjust what each beneficiary receives, or better yet, create a new trust post-divorce. Many couples who created an estate plan together that included a trust will want to consider de-funding the trust and creating separate trusts once the divorce is final. It is important that this occurs shortly after your divorce is final, as your old trust likely grants powers to each other that would not be desired after your divorce is complete.
While a divorce, by itself, does not change your beneficiary designations on assets such as life insurance, pensions, endowments, annuities, and retirement assets, a divorce may affect your current nominations. The parties should set forth in their divorce agreement exactly which, if any, of each other’s assets should be divided between the two of you. If the divorce agreement is silent as to whom and how the assets are divided, then a designation naming your ex-spouse may not be valid after the divorce. However, the Michigan law dealing with beneficiary designations after your divorce only mentions certain types of assets. It does not mention other assets such as investment accounts, stocks, mutual funds and the like. These can all have beneficiary designations on them, thus it is essential that you complete new beneficiary designations immediately after the Judgment of Divorce is signed to make sure your share of the assets go to the people you choose after you pass away.
Sometimes you do want your ex-spouse to receive something as part of your estate plan. Your Judgment of Divorce may order you and/or your spouse to maintain life insurance to cover the cost of child support or spousal support. You may want your ex-spouse to control your children’s trust accounts while the children are young. You may even want your spouse to inherit some of your assets directly (after all, not every marriage ends on bad terms).
If you want to keep your ex-spouse in your estate plan, it is important that you meet with an estate planning attorney after the divorce is final to reaffirm your beneficiary, trust, and will designations. By signing and dating this paperwork after the Judgment of Divorce has been entered, you will make it clear that your intent to include your spouse continues even after the marriage is over.
Whether your divorce was collaborative or high-conflict, make sure a visit to an estate planning attorney is on your “to-do” list after the judgment has been signed. At NSSSB, we have decades of experience helping individuals and spouses with their divorce and estate planning needs. We can help you understand how one will affect the other, and make the necessary changes to your estate plan after the divorce is over. Click here to schedule a consultation with an attorney and make sure your estate plan is up to date.