In the last post, I raised some issues regarding most people’s approach to marriage. I touched on aspects of marriage that significantly impact both spouses’ lives and yet most people feel it is taboo to even discuss nuptial or cohabitation agreements. In this post, I will raise issues stemming from divorce. Specifically, how divorce impacts a newly-single person’s estate plan. Please note that the following assumes the following facts: the marriage was for over 5 years, there are young children from the marriage, and there were some assets divided between the ex-spouses, and the ex-spouses are both currently employed.
(Part I can be found here.)
Divorce: So you’re newly divorced. Congratulations! That must have been a strange, emotional journey. But, alas, you’ve made it to the other side–granted, a helluva lot poorer–but you’ve made it nonetheless. What’s even more important is that your minor children can move on with life and just be a kid again.
There are few issues, though, that are imperative to address before you get too happy over in divorceville. Mainly, now that you are single, did you make sure to cover all your bases with respect to your “new” estate plan? What I mean is that you don’t have a wife anymore, but you still have children. If you were to keel over and die right this second, what would happen to your 401(k), stocks, savings, car, house, etc.? Did you think that they would go directly to your children?
Yes and no. I guess the first question is, “Do you have a will?”
No will: Anytime someone dies without a will, his/her property is distributed to heirs as determined by what’s called an “intestacy statute.” By default, in California, a dead person’s property first goes to a surviving spouse. You got rid of that person. Next, it goes to one’s surviving children. Bingo! That’s what you wanted, right? Almost. Children under 18 years of age cannot hold property. Therefore, all that property going to a minor is frozen by the court, and promptly released to that child upon turning 18 years of age. That’s bad in two respects. One, the property is frozen (i.e., no one can do anything with it, including investing it). Two, an 18 year old will come into a whole lotta cash when he/she is way too young to do smart things with it. That’s bad all around.
Will: Phew! Ok, so you at least have a will in place. Well, if that will provides for a minor taking property, see above.
On a similar note, imagine if you listed your ex-spouse as a beneficiary to those things that do not pass through your estate when you die (e.g., 401(k), pension, life insurance, etc.). Without changing that beneficiary to someone else, that ex-spouse you took your time and money to get rid of is now the proud beneficiary of all of those assets!
If you were thinking, “Ah, who cares? It all goes to my kids someday anyway.” That’s a bit short-sighted. What if your ex-spouse re-marries with someone who has children from a previous relationship? Well, all of those assets that just passed to your ex-spouse upon your death may end up going to someone else’s children! The bottom line is that now is the time to declare what you want done. Once you’ve died, well… “speak now or forever hold your peace.” I’m sure you remember that one from your wedding day.
So what’s the solution, then?
First, upon final judgment of divorce, notwithstanding what was decided during the divorce, a newly-single person should review all of his/her beneficiary designations, all insurance policies, all deeds, and all forms of title. Make sure it’s consistent with your divorce and with your wishes. Second, think about seeing an estate planning attorney to discuss appropriate estate plans for you now that you are single, have minor children, and want to make sure your wishes are carried out post-death. One way is by way of a trust, where someone else holds property for the benefit of your minor children. Maybe just a thorough will suffices.
The bottom line is that you are a newly single individual charged with the task of caring for minors. Single parents do this all the time. They try their best to get by. However, you’re different. You used to be married. You’re used to a certain lifestyle. You’ve accumulated quite a bit of assets, and debts, that are now crudely divided. You worked hard to get through your divorce. Death is another form of divorce, where life leaves your body and takes all of your property with it. Don’t leave it up to chance.
