Getting divorced ends your primary legal relationship with your spouse, but it’s rarely the end of the story. What many people don’t realize is that divorce is not a one-stop-shop for cutting legal ties. Your divorce decree declares you legally single and instructs how to divide your assets. However, it’s up to you and your ex-spouse to ensure the decree is communicated to the right people and acted upon.
Furthermore, your decree has no direct impact on issues unrelated to your marital status, such as your estate plan. After your split is finalized, you are responsible for ensuring your estate planning documents accurately reflect your current preferences. For example, it is crucial to review your beneficiary designations, or you may accidentally leave everything to the ex-spouse you can’t stand anymore.
What Are Beneficiary Designations?
A beneficiary is someone who receives a direct benefit from your estate plan, usually consisting of assets or sometimes nonmonetary support. During the estate planning process, you may name several beneficiaries across multiple documents. Some common instances of when you must name a beneficiary include:
- While writing your will, you will identify the people and organizations you want to receive specific portions of your estate
- When setting up a trust, you will name the parties who will receive disbursements from it
- When purchasing a life insurance policy, you’ll name at least one party who will receive the insurance funds if you pass away during the policy’s term
It is important to note that, with few exceptions, once you have established a will, trust, or life insurance policy, the beneficiaries you name are fixed unless you change them. A divorce will not alter any of these items automatically.
Risks of Out-of-Date Beneficiaries
After you get divorced, one of your top priorities should be to update your beneficiaries on every account, insurance policy, trust, and estate document possible. Usually, it is necessary to name a specific person as your beneficiary for these items. If you designated your now-ex as a beneficiary, it does not matter if you are officially divorced. As long as they remain on the paperwork, they will receive the same or similar benefits as they would have when you were married. Some of the biggest risks this poses include:
- Accidentally leaving everything to your ex-spouse. If you named your now-ex-spouse as your primary or sole beneficiary in your will, they will still receive everything after your split. If you don’t want that to occur, you need to update it as soon as possible.
- Failing to leave assets to a new spouse. Similarly, if you remarry, you must update your will to include your new partner. Otherwise, a significant portion of your joint assets may go to your ex, potentially leading to financial hardship for your new spouse.
- Dividing assets inaccurately among your heirs. Above and beyond the question of whether your ex will receive assets from your will, you must also consider the impact of property division on your estate. After your split, you likely no longer have some of the assets named in your original will. If you don’t update your beneficiaries, this change to your finances can lead to some of your loved ones being left out when your assets are divided.
In short, failing to update your beneficiaries can put your ex in charge of your estate, leave out new partners, and prevent your loved ones from receiving the assets you intended for them.
Where Do You Need to Update Your Beneficiaries After a Divorce?
So, this raises an important question: what documents do you need to update after your divorce is final? A skilled estate planning attorney can help you identify all the places where you should update your information. In general, you’ll need to review and revise the following:
- Your Will: At a minimum, you should update your will to ensure you don’t accidentally leave everything to your ex. If you don’t already have a will, now is an excellent time to draft one.
- Life Insurance Policies: In most cases, your current spouse is automatically named the primary beneficiary when you buy a life insurance policy. You’ll need to update your information on any insurance policies you have once your split is final.
- Trusts: While not every trust may be altered after it is established, many can. If you created a trust to protect your assets and support your loved ones after you pass, you should discuss whether it’s possible to update the beneficiaries with your estate planning attorney.
- Investments, Bank Accounts, and Pension Plans: Many financial accounts allow you to name parties who will benefit from them after you’re gone. Make sure to check these accounts and update them to align with the beneficiaries named in your will.
- Powers of Attorney: While the person you grant power of attorney is not technically a beneficiary, they may have significant control over your finances if you become incapacitated. It’s worthwhile to review any power of attorney documents you may have established to ensure that someone you trust will be in charge of your assets if you can no longer make your own decisions.
Review Your Post-Divorce Estate Plan and Beneficiaries
The goal of a divorce is to end your legal ties to your ex-spouse. Don’t leave things half-done by ignoring your estate plan. Instead, talk to an expert estate planning attorney about revising your beneficiary designations to reflect your actual preferences post-divorce. The skilled attorneys at CC LawGroup in Fremont, California, can help. We are prepared to help you revise your estate plan, review your beneficiary designations, and ensure your will and other documents reflect your wishes. Schedule your appointment with us today to discover how we can help you build a robust post-divorce estate plan.