Let’s face it, divorce is very difficult under the best of circumstances. It can be mentally, emotionally and clearly financially draining. Once it’s over, most people don’t want to think about anything related to it for a long time. In reality, it can be one of the most important times for financial and estate planning. There is a long list of things that need to be updated after a divorce, and today we will cover a few of the most important ones.
1. Life insurance beneficiary designations — Updating your beneficiaries on your life insurance policies needs to be done immediately. (This should actually be reviewed every year along with all of your beneficiary designations). I can tell you countless horror stories about people who never got around to changing life insurance beneficiaries after a divorce, and left their death benefit to an ex-spouse instead of their current family. Your current beneficiary remains the same in every state, except for Minnesota, even after a divorce. If your ex-spouse is required to pay you support, your divorce decree should always require your ex-spouse to have life insurance on themselves where you are the owner of the policy. As the owner, you can ensure payments are being made, and any changes require your consent.
2. IRAs — Your IRA, unlike your retirement plan, allows you to name any beneficiary you want without spousal consent. You must change it yourself in order to name a new beneficiary. If you remarry, your new spouse will not automatically become the beneficiary of your IRA.
3. Retirement plans — In a retirement plan, your new spouse automatically becomes your beneficiary unless they agree to sign off on it. Remember, a prenuptial agreement does not cause a new spouse to give up this automatic right regardless of what they agree to in the document. Only a spouse can waive out of being a beneficiary, and a spouse does not sign a prenup, a fiance/fiancee does. Therefore, it doesn’t matter what they agree to regarding your retirement plan. Whatever they agreed to regarding your retirement plan no longer applies the day you get married.
4. Estate documents — Your ex-spouse may likely have been your power of attorney, trustee of your trust or the executor of your will. Obviously these documents need to be updated immediately after a divorce.
5. Transfer on death (TOD) accounts — These are investment accounts that automatically are made payable to a named person when you pass.
Leaving money to someone you are no longer with can cause huge fights among your family members and ex-spouses and may cause your estate to lose a lot of money in legal fees.
In a perfect world, your adviser and/or estate planning attorney would be a part of the process before you even get a divorce. They view the process through a very different lens than a divorce attorney does. Having their input in advance can potentially save you time, money and problems during an already very difficult stage of your life.
T. Eric Reich, CIMA, CFP, CLU, ChFC is president and founder of Reich Asset Management and can be reached at 609-486-5073 or email@example.com.
Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. Reich Asset Management, LLC is not affiliated with Kestra IS or Kestra AS. The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Investment Services, LLC or Kestra Advisory Services, LLC. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation.