Estate Planning After Divorce

It’s a relief to have the judge approve your Separation Agreement, but you still have a few more things to do, before you fully free your finances. It’s now time to do some estate planning after divorce. It’s never fun to think about death, or your ex, but you’ll have to push through the discomfort and check on these important financial items before you’re done. Otherwise, your ex-spouse might get a windfall when you die.

Here are the most important things that a newly divorced person do, to ensure that they start their new chapter on the right financial foot:

There are likely to be a bunch of financial loose ends in your Separation Agreement or Judgment: Transferring retirement account funds via QDRO, closing joint bank and brokerage accounts, refinancing or selling real estate. Don’t sleep on these important tasks. It gets harder to get these things done as time marches on. It’s also a big liability if you die before it’s done, and a big headache for your personal representative (fka: “executor”). Do you want your personal representative left tying up the loose ends on your divorce because you didn’t get around to it? I didn’t think so.

Generally, a Separation Agreement pursuant to a divorce will state that the ex-spouse is not entitled to assets distributed pursuant to a will or to probate, but some assets don’t go through probate. Those include: Joint bank accounts, retirement accounts, and life insurance benefits. After divorce, the parties should change the beneficiaries on all retirement accounts, life insurance, and “transfer on death” accounts. The divorce agreement usually requires parties to close all joint accounts within a short time frame. Be sure to follow through, or your ex-spouse will get all the funds in a joint account after you pass, and your heirs may not know to chase after those funds.

Many divorced parents are required to have life insurance that benefits the children. This is intended to fulfill their child support obligation if the parent dies while the children are minors. Some divorced parents prefer not to have their ex-spouse manage the children’s money. If you feel that way, then you can have the life insurance proceeds left to a trust in the child’s name, and name a trustee that you believe will responsibly manage the money.

Single parents who want to leave their assets to their children may want to set up a trust for minors. In Massachusetts, if a child inherits money, the state establishes a trust and names the trustee under the Uniform Transfers to Minors Act. The trustee can use the trust funds to provide for the child’s use and benefit. At the age of eighteen, the child inherits the remaining principal. Some parents prefer to have their children inherit at an older age, and prefer to name the person who manages the funds. For those parents, a trust for minors is appropriate.

Lastly, I suggest having a new will drafted and executed. This is not simply to take your ex-spouse’s name off of the will, but to ensure that your children or your step-children (if you are getting remarried) will receive their intended inheritance. You may have seen this story in the Boston Globe about a person who cared for her step-father for many years, as he was ill and dying, and she continued to live in his home. But because he didn’t have a will, the rightful heirs of the home are the step-father’s estranged nieces and the step-child was forced to move out.