The divorce process can be long and expensive. However, the work does not end once the divorce decree is signed. In order to ensure that your assets and estate planning wishes are carried out in light of this major life change, there are three things you must do as soon as possible.
Change Beneficiary Designation On Life Insurance
A life insurance policy is a contract between you and the insurance company. You designate the beneficiary (the individual(s) or entity who will receive the proceeds upon your death) and the insurance company will pay them when you die. Because the beneficiary designation is a legally binding contract, the insurance company has to pay the individual listed as your beneficiary. In some states, if your ex-spouse is listed as the beneficiary, they will pay the funds out to him or her. It does not matter to the insurance company if the two of you are now divorced.
Fortunately, this is not the rule in Missouri, at least not for all types of insurance or accounts. In Missouri, divorce triggers an automatic revocation of any beneficiary designation in favor of the former spouse by operation of law (RSMo. 461.051). However, that automatic revocation can be prevented by indicating that the designation is irrevocable or revocable only with the consent of the spouse, or if the designation is made after the divorce is over or where the designation says that it won’t be affected by divorce. Even where the revocation does take place, however, it is important to designate a new beneficiary to prevent any company from passing assets to your estate and the accompanying probate process. WARNING: This automatic revocation does not apply to federally-regulated ERISA plans sponsored by your employer. Federal courts have held that ERISA preempts state law causing an automatic revocation and that no revocation occurs upon divorce for these sorts of plans. Therefore, it is particularly important for you to update your beneficiary designations on any employer-sponsored life insurance or retirement plans.
Update Beneficiary Designation On Retirement Plans
Although state law may automatically revoke a designation on a retirement plan if the ex-spouse is listed, federal law states that the last named beneficiary is the one who is entitled to the funds. Depending upon what type of retirement account you have, it might be the state law that controls, or the federal law. To be on the safe side and avoid a potentially long and costly battle for your family, it is best to change the beneficiary as soon as possible.
Create or Revise Your Estate Plan
If you and your former spouse had a joint trust, you will need to have your own individual trust created to hold the assets that are now in your name only. In this new plan, you will need to think about who to name as the trustee and beneficiary. If you have minor children, you may also need to consider who is going to be the individual to manage those assets on behalf of your children. In many cases, you may not want your ex-spouse in these roles.
If you do not have any estate planning documents in place, now is the perfect time to get everything in order. After going through the divorce, you probably have a good idea as to what assets you own and the value of them. This will be very helpful as you evaluate the right estate plan for you.
Your estate plan is more than just a will or a trust. It can include documents such as a powers of attorney for healthcare and finances. Whether you have them already or need to have ones executed, this is a crucial time to review them. Chances are you no longer want your ex-spouse to have the authority to sign documents on your behalf or make medical decisions for you. To avoid confusion by third parties as to who should be acting on your behalf, make sure to work with your attorney to update these essential documents.
