Updating your estate plan during or after a divorce
Divorce is an emotional and complicated process involving not only the unraveling of a marriage itself but also division of property, child custody, parental rights, spousal support, and a host of other legal issues. One of these issues is the effect of divorce on estate planning during or after the divorce proceedings. Estate plans reflect financial and life situations at specific times and provide protection in the event of tragedy or other circumstances. However, life changes all the time and as such, estate plans may need revisions as well in order to accommodate the birth of a child, marriages, deaths in the family, and divorce.
When to update and estate plan
Some couples planning a divorce believe that simply filing the papers renders nil all prior estate planning efforts, while others don’t even consider estate planning. Sound estate planning should occur before, during, and after a divorce. For example, it is extremely important to review beneficiary designations regarding retirement plans and insurance policies immediately after a divorce. Keep in mind that divorce does not automatically remove a spouse as a beneficiary and without due diligence, your ex-spouse could inherit a majority of your estate.
To that end, failing to update an estate plan and corresponding documents after a divorce can result in an ex-spouse receiving benefits he or she is not entitled to. For example, IRA or 401(k) plans make up a significant portion of estate assets and if a spouse is named as beneficiary on a retirement account but that detail is not updated after divorce, the spouse can claim the amount.
Are you protected?
Fortunately, Michigan law includes a semblance of limited protection of estate assets claimed by former spouses. One related statute declares that divorce revokes disposition of property made in a will to a former spouse. Note that this does not affect beneficiary designations made in retirement accounts, life insurance policies, and other financial accounts. In fact, some of those designations might not be affected at all, depending on how the divorce judgment is worded.
However, under Michigan case law, an ex-spouse is not allowed to retain beneficiary assets if they originally waived that right in the divorce judgment. This scenario often results in a lawsuit and puts beneficiaries in an awkward, expensive, and time-draining position of having to sue to reclaim outstanding funds.
Other reasons to update estate plans during divorce
During happier and more caring times, many couples draft an estate plan that leaves everything to the other spouse. But if divorce splits the couple apart, both spouses need to immediately prepare new estate plans to ensure accurate and fair division of property. It is a potentially catastrophic mistake to rely on related statues to take care of these matters; always be sure to remain proactive with estate plan updates.
Even in cases with a revocation of a spousal gift, it might not be certain what will happen to the property. In fact, the property might not go to either spouse and instead end up with an alternate beneficiary.
For more information on updating your estate plan, contact The Gucciardo Law Firm today at (248) 723-5190.
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