The Estate Planning Checklist for Divorcing Spouses
Estate planning is a smart way to protect your assets and ensure your spouse is taken care of after your death. With divorce, however, your wishes may have changed. It’s critical to take the time to review and revise your estate plan documents during and after a divorce. Read on for which files to unearth, why you might want to update them sooner rather than later, and how you can help fund some of the unexpected costs that come with a divorce.
Estate Planning Checklist for Divorcing Spouses
Power of Attorney
Power of attorney (POA) allows your spouse to make decisions on your behalf. These can range from 401(k) allocations to personal business transactions. During a divorce, you’ll need to amend your POA. You can revoke your spouse’s privileges while appointing a new POA, but be advised that you may be required to notify your ex of the change.
Last Will & Testament
Having a will in place is the best way to ensure your wishes are carried out after your death. Most likely your spouse is named as the primary beneficiary in your will and executor of your estate. Now is the time to rethink your beneficiary choices. If you have a will on file with your lawyer, you can revoke the old will by replacing it with a new will. Ensure your lawyer destroys any copies of the old will, and tear up any copies you have, too. If you don’t have a will, speak to your attorney about drafting one.
Payable-on-death (POD) accounts provide a transfer of funds from checking, savings, and money market accounts directly to your beneficiary. The advantage of POD accounts is your grieving spouse can avoid the time-consuming and sometimes lengthy probate process. During divorce, it’s essential to update your beneficiary information with each of your financial institutions and assign a new designee. If you are the sole account holder, the process is relatively easy and straightforward.
As with your POD accounts, you may have designated your spouse as the beneficiary to your 401(k), IRA, and other retirement accounts. Unlike a POD, however, retirement accounts can be viewed as assets to be divided in the divorce. Inform your attorney of all such accounts—before changing beneficiaries—so they can be awarded correctly along with responsibility for the appropriate taxes.
Similar to retirement accounts, check with your lawyer about changing your life insurance beneficiary. You may have to revisit this policy after your divorce in order to revise the designations.
Although counterintuitive, it’s not as easy as you may think to disinherit an ex. In some states, like California, you cannot disinherit a former spouse entirely. Your ex can contest your will and may receive a percentage of your assets despite the wishes of your will. To avoid a legal fight, some divorcees include the minimum their former spouse was entitled to by law while others in the midst of a contentious divorce may prefer to force a court battle after they’re gone. Speak to your attorney about your options and what makes sense for you.
Safety Net Before and After Divorce
Estate planning is focused on the future, but planning for it is very much a present-day activity. Staying ahead of the changes you’ll need to make during a divorce can ease the transition for both you and your former spouse.
As with other aspects of divorce, you will incur unexpected expenses with the division of assets. A safety net to fund those costs may be right above your head. Tapping into your home’s equity may be a smart solution for sharing your assets without selling your home and footing some of the divorce bills. With no monthly payments or new debt, a Hometap Investment may be a good fit for your finances, especially if you or your spouse wants to stay in your home.
If you’re going through a financially draining divorce and want to avoid the stress, debt, and interest of a personal loan or credit card balance, consider a Hometap Home Equity Investment to offset the cost without taking on debt.
Take our 5-minute quiz to see if a home equity investment is a good fit for you.
You should know
We do our best to make sure that the information in this post is as accurate as possible as of the date it is published, but things change quickly sometimes. Hometap does not endorse or monitor any linked websites. Individual situations differ, so consult your own finance, tax or legal professional to determine what makes sense for you.