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The Importance of Post-Divorce Beneficiary Planning

Posted on February 3, 2022 by Lasher Holzapfel Sperry & Ebberson

When you’re in the throes of a separation or divorce, it is easy to forget the importance of updating your will and your estate plan.  With so much happening in the here and now, things like beneficiary designations and estate planning can feel very much like an “I’ll get to it someday” problem.  However, as many people have found out, putting off changing your will or beneficiary designations can be a costly, and often devastating, mistake.

Here are just a few of the reasons why it’s a good idea to set aside some time right now to check and update your beneficiary designations and your will, or create an estate plan if you have not already done so.

Know Who’s Going to be Making Your Decisions for You

Of course everyone hopes this isn’t something that needs to be considered for a long time, but what would happen to you if you were incapacitated and deemed unfit to make your own legal, medical, and financial decisions?

If your ex-spouse should – for any reason – have power of attorney, he or she will be the one to step up and decide what happens to you, your body, and your finances.

Your Beneficiary Designations Supersede Your Will

You may assume that your divorce automatically overrides beneficiary designations you may have made during your marriage.

In some states, divorce statutorily revokes prior beneficiary designations, however, failure to change those designations will make the administrator of a policy assume it was your intention to leave that person as your beneficiary and let the terms speak for themselves. Your beneficiary designations take precedence so even if you have updated your will, if your ex is still the named beneficiary of your life insurance policy, your retirement plan, or your personal investments, they’ll automatically be entitled to those assets.  In many instances, these designations can even override your will so it is very important to update both your will and beneficiary designations so that everything is in alignment with your wishes.  Be sure to discuss this your attorney if your divorce is pending because often automatic court orders will prevent you from making these changes until your divorce is final.

Providing for Your Children

Children cannot inherit assets directly so it’s likely that in an existing will your spouse was named as guardian of the estate, meaning they control your children’s assets until they reach adulthood.  Depending on your relationship with your ex, you might want to consider naming an alternative person (or even an institution through a trust) to protect your children’s inheritance.

It’s also worth considering how your family might change, now or in the future. If you have a new partner and/or you’re considering a second marriage, you may want to ensure your children are named in your will so that your new spouse does not automatically inherit a portion or even all of your estate. Similarly, you may want to check that any new partner will be provided for, particularly if you don’t intend to marry.

It’s All About Timing

When it comes to changing beneficiary designations, every state has its own rules — some accounts or policies can and should be changed prior to your divorce being finalized, and some most definitely should not.

It is essential that you discuss these matters with your attorney prior to making changes to your beneficiary designations or estate plan.  If you make changes before you’ve reached a final agreement, there could be repercussions should you end up in court for final orders. For example, a judge might think you’ve been trying to deprive your spouse of their rightful share of your assets.  At best you could be muddying the waters of your divorce process, at worst you could be violating state laws or court rules.

It’s also worth being careful if your divorce has been finalized. Changing the beneficiary designations could result in your ex-spouse taking future legal action against you or your estate if, for example, a divorce provision required you to name your spouse or child as beneficiary to your life insurance for a period of time to secure children support or spousal maintenance obligations and failure to follow that order can result in court action and/or sanctions.

If in Doubt…

It is always best to consult with a legal professional to make sure any changes you make are timely, legal, and will result in the people you love receiving what you intend to provide for them after your death. Your current attorney will be happy to advise you, but if you have not consulted with a legal professional to assist with your divorce or future financial matters, please contact the Family Law and Estate Planning attorneys at Lasher Holzapfel Sperry & Ebberson.