Insurance and Estate Planning Concerns when You Divorce

If you are faced with getting a legal divorce from your spouse, you have a lot of planning to do in terms of preparing your estate. In most cases, you will need to name new beneficiaries, organize your divided assets and ensure that your new individual estate is set up for your heirs after you become deceased or incapacitated.

It is vitally important that you meet with a qualified attorney to discuss the specifics of planning your estate after your divorce to ensure that your Will is carried out in the manner in which you desire. You need to be aware of what could happen if you do not name a new beneficiary for your insurance and retirement benefits and you need to be well-versed in the most strategic methods of dividing you and your ex-spouse's joint estate so that you do not end up paying all of the taxes while he or she enjoys the benefits of your assets.

Here, we have outlined some important information for you to be aware of when planning your insurance and estate after your divorce. Please keep in mind that divorces lend themselves to new and complicated tax structures for individuals that have never been through a divorce before.

In addition to reviewing the information below, we invite you to contact us for a thorough review of your estate - both pre and post finalized divorce - to ensure that you receive the best package for you and your beneficiaries.

Assigning Your Beneficiary

During your marriage, chances are that your spouse was the sole or major beneficiary of your estate. After your divorce, it is important that you change all of your estate documents to designate your new beneficiary, be it a child, new spouse, charity or other entity.

The federal law called ERISA is in place to pre-empt a state law that automatically removes an ex-spouse as the beneficiary of an estate of an ex-spouse. It's important that you, therefore, manually remove the ex-spouse in the event that you do not wish for him or her to remain as your designated beneficiary.

Even once you re-name your beneficiary, it is possible that you ex-spouse will still retain the rights to a full or partial portion of your life insurance proceeds and retirement benefits that you accrued during the time of your marriage. We recommend consulting with a qualified estate planning attorney to determine just how much of your benefits and estate will be designated to your ex-spouse after your divorce.

Dividing Your Assets

During the course of your divorce, you and your ex-spouse will surely meet with your respective attorneys to determine how your joint estate will be divided. To give you an idea of the impact a divorce can have on your estate, take a minute to review a few assets that you will need to divide: 1) appreciated assets, such as mutual funds, artwork, stocks and real estate; 2) real estate, including investments, repairs, insurances and mortgages; 3) personal property, such as jewelry and clothes; 4) retirement plans, such as qualified plans and IRAs; and 5) your home, which can be divided in three different ways to meet both party's financial stipulations.

Establishing a Trust

Establishing a Trust ensures that your appointed Trustee will have control over the funds that you enumerate in your Will. There are three Trusts that you can explore when establishing your estate:

1. The Revocable Living Trust - helps you avoid probate by allowing your designated Trustee to distribute your assets according to the instructions that you have outlined.

2. The Children's Trust - allows you to designate funds to be used later in your child's life to pay for his or her education, home, etc.

3. The Irrevocable Life Insurance Trust - otherwise known as "ILIT", this Trust allows you to distribute funds when and how you want, even long after you're gone.

Divorce is never easy. In fact, it's typically a very long and arduous process as both parties work to get their portion of the shared assets. The best that you can do if you're going through a divorce is to speak with a qualified attorney who can walk you through all of the tax and asset considerations that you will need to be aware of to ensure that you receive the best possible settlement. Contact us today for more information about managing your divorce assets and new Will.