If you are considering or going through a divorce, estate planning should be dealt with as part of the financial settlement. Since financial matters examined very closely during divorce proceedings, it is a good time to either make an estate plan if you don't have one or update your existing plan.
Make a Will
A will is a legal document indicating how a person wants his or her money and property distributed upon death. If you have an existing will, you will probably want to change it to reflect your new circumstances. A number of states automatically nullify any inheritance given to a former spouse in a will when a divorce is finalized, but it is a good idea to make changes to reflect your new circumstances before the divorce is finalized.
If you plan on leaving a portion of your estate to a minor child, you may need to appoint someone to oversee his or her inheritance. You may not want your former spouse to have control over these funds.
Living Will and Power of Attorney
If you have other legal documents, such as a living will or a power of attorney which give your former spouse authority to act for you, these should be changed. Appoint someone else to make decisions for you if you become seriously ill and/or unable to manage your own affairs. If you are preparing a living will, you may also want to consider signing a Do Not Resuscitate Order (DNR) as well.
Generally speaking, any assets owned before the marriage are considered the property of that individual. Property or other assets accumulated during the marriage are subject to division in a divorce settlement. In order to prove that an asset was owned by one of the parties prior to the marriage, it may be necessary to produce documentation showing the date of purchase.
People who are thinking about a divorce are encouraged to gather financial documents and keep them in a safe place before starting a divorce action. It may be difficult to find or get access to these important papers after divorce documents are filed. Bills of sale, promissory notes, tax records, bank statements, and medical records are all examples of documentation that should be gathered and turned over to your attorney.
Under the terms of the property settlement, you may be required to purchase and make payments on a life insurance policy with your former spouse as the beneficiary. This will ensure that any minor children will have a source of financial support in the event of your death. You may be required to keep this policy in force until your youngest child is legally an adult.
Your former spouse may be entitled to a percentage of your retirement benefits. A 401k plan will be split according to guidelines set out the federal government. Other plans (IRAs and SEPs, etc.) will be dealt with according to the law in your state of residence.
It may be beneficial to have the agreed-upon or Court-ordered amount transferred into a new plan under the former spouse's name. In other cases, the retirement plan is kept intact but other assets are divided at the time of divorce. In addition to consulting with your attorney, you may want to seek the advice of an accountant or a financial planner, who can explain the ramifications of these decisions.
Divorce Estate and Financial Planning
It's important to review your financial affairs at regular intervals. This is even more necessary when a major change in your circumstances occurs--such as marriage, the birth of a child, divorce, or the death of a spouse.
When a marriage ends in divorce, there are a number of decisions to be made that will affect the parties' financial lives going forward. For that reason, it is important to get expert advice to ensure that all your bases are covered.